How Much Do I Need For A Down Payment On A Home?
How much money do I need for a down payment? I will count myself as rather surprised at how many home buyers think they need to save 20% for a down payment these days. Depending upon the loan program you could need no money for a down payment (such as a VA loan). There is a conventional loan that only requires 3% (if qualified). FHA minimum is 3.5% down. So there are several no or low down payment options. They may have some particular guidelines such as veteran status, credit score, property location, income, etc., that have to be met to qualify.
Of course the more one puts down affects the principal and interest payment, private mortgage insurance payment, etc. Saving 20% down can be difficult, however, and something to be measured against delaying a purchase. What I hear most often is that home buyers think (a) 20% is the minimum down payment or (b) the buyer doesn't want to pay PMI insurance.
The fact is most of the first time home buyers I work with don't put down 20%. If one were to weigh the option of saving the larger down payment against delaying a purchase for several years it is advantageous to buy sooner if one is going to be paying rent. Even if owning a home may not be a cheaper payment than rent,at least one is normally building some equity, as opposed to paying off someone else's mortgage.
So the fact is, there are a variety of loan programs with little or no down payment requirements or the qualified borrower. For that matter several allow the down payment to be a gift, for instance from a relative. Best practice when considering buying a home is to discuss the different down payment options with a loan originator. Then decide when is the best time to buy. No one knows what will happen to interest rates going forward but if rates go up a couple of points while saving a larger down payment it could wipe out the advantage of the larger down payment.
I like to discuss the down payment options available to a home buyer and provide a comparison of how each program works to arrive at what is available. Then I can compare the pros and cons of minimum and maximum down payment as it relates to the monthly payment and overall goals of the home buyer. Key takeaway here is that in our market a typical first time buyer does not have to save up a 20% down payment for a conforming loan and assuming they are credit worthy.