What Size Down Payment Do You Need?
Most people believe you need a 20% down payment to buy a house. It’s possible, however, to purchase even a brand-new house with as little as 3.5% down — maybe even nothing down at all.
Low down payments aren’t just for resale homes. The same opportunities exist to buy a newly built home, in fact. There aren’t any down payment requirement differences than if a homeowner were buying an existing house or buying a traditional single-family home from a builder.
So, what are the minimum requirements?
Conventional Loans
The minimum down payment to buy a home for a conventional loan that conforms to Fannie Mae or Freddie Mac guidelines is less than 20%. A loan amount up to $417,000 requires just 5 percent of the house’s purchase price. If the amount is larger than $417,000, the down payment can be as low as 10 percent.
There are even smaller down payments allowed for conforming loans, such as Fannie Mae’s 3-percent program.
FHA Loans
An FHA loan has a minimum down payment of just 3.5 percent of the home’s purchase price. They are insured by Federal Housing Administration (FHA). The FHA is part of the U.S. Department of Housing and Urban Development (HUD), making it a federal government agency.
VA and USDA Loans
VA loans are guaranteed by the U.S. Department of Veterans Affairs (VA). USDA loans are backed by the U.S. Department of Agriculture. These loans don’t require a down payment at all, so buyers can buy a house with very little cash up front. The VA loan is for most active-duty military personnel and U.S. military veterans. The USDA loan is for homes in rural and outlying suburban areas.
Where to Get Your Down Payment
Conventional, FHA, VA and USDA loans all allow at least part of the buyer’s down payment to be a gift from a family member or funds from a down payment assistance program. 100% of the down payment from the FHA can come from gift funds. With the 5% down conventional, all 5% can be a gift. Some builders will allow buyers to save up part of the down payment during the home’s construction.
Mortgage Insurance
Low-down-payment loans normally involve mortgage insurance or a funding fee. The insurance is paid monthly. The funding fee is paid upfront but could be financed as part of the loan amount or through a higher interest rate.
FHA will always have mortgage insurance. VA will have a funding fee. Conforming loans will have mortgage insurance until you put down 20%. Mortgage insurance is not needed once you get to 80% loan-to-value.
Condos
The amount of money a buyer will need for a new condo unit depends on a couple of things:
- The lender’s guidelines
- Type of loan
- Property location
- The proportion of units that have been pre-sold during the construction phase.
Florida is one area where lenders might require a larger down payment and a higher proportion of presales for a buyer to finance a newly built condo.
The main thing is that most people don’t need a big down payment to buy a house. Some don’t need any down payment at all. The only way to find out what you need is to talk to a lender. If you are in the first stages of buying a new home, give us a call. We can provide you with a list of our preferred area lenders and help you find the home of your dreams.