How Much Do You Need For A Down Payment To Buy A House?
Miranda Crace8-minute read
November 07, 2023
If you’re buying a house for the first time or you’re looking for your next home, you might be wondering how much money you’ll need for a down payment. Here are some important considerations to keep in mind about down payments to help you decide what makes sense for you...
Do You Need A 20% Down Payment On A House?
The idea of a 20% down payment can make homeownership feel unrealistic, but the good news is that very few lenders still require 20% at closing. That said, it can be advantageous to pay 20% of the home’s purchase price if possible.
Before deciding, you should weigh the pros and cons of making a large down payment, to see what will work best for your finances and goals.
What Are The Pros And Cons Of Putting 20% Down?
Let’s examine the advantages and downsides of making a 20% down payment on a house.
A 20% down payment is widely considered the ideal down payment amount for most loan types and lenders. If you can put 20% down on your home, you’ll reap the following key benefits.
You’ll need to put 20% down if you want to avoid buying private mortgage insurance (PMI). PMI is insurance that protects your lender if you default on a conventional mortgage loan.
Even if you don’t put 20% down, you can request that your lender remove PMI once you’ve reached 20% equity in your home.
Equity is the difference between how much your home is worth and the amount you still owe on your mortgage. Here are two ways you can gain equity:
- If your home increases in value
- If you pay off your mortgage principal through your monthly mortgage payments
In most cases, lenders automatically cancel PMI once a borrower has built 22% equity in their home.
Better Interest Rates
The interest rate is the percentage of the principal, or outstanding balance on your mortgage, that your lender charges you monthly for borrowing money.
The higher your down payment, the less of a risk you are to lenders. If you’re able to put down at least 20% on your mortgage at closing, you may have access to a lower interest rate. Just a 1- or 2-point drop in interest rate can save you thousands of dollars over the course of your loan.
Lower Monthly Payments
The larger your down payment, the less money you’ll borrow for your mortgage loan. The less you borrow, the smaller your monthly mortgage payments will be. This makes it easier to budget for repairs or any other expenses you incur each month.
Competitive Edge Over Other Buyers
Home sellers often prefer to work with buyers who have at least a 20% down payment. A bigger down payment indicates your finances are more likely to be in order, so you might have an easier time finding a mortgage lender. This can give you an edge over other buyers, especially if the home you want is in a hot market.
Cons Of Putting 20% Down
Putting 20% down isn’t right for every buyer. Some buyers simply can’t afford it. Others would rather keep some cash reserved for future repairs and other expenses. If you’re trying to decide how much down payment you need to buy a house, consider these drawbacks.
More Financial Risk
Once you put money down on your mortgage, it’s not easy to get it back. If you think there’s a chance you might need the money for something important later, it may be wise to put down less and build your emergency fund.
Less Money For Repairs And Other Items
Homes in need of only a few minor repairs can be a bargain for new buyers. However, the larger your down payment, the less money you’ll have left over to spend on repairs and maintenance.
Longer Time To Save
For most people, saving for a down payment can take months, years or even decades. Waiting until you have a 20% down payment can lead to a huge opportunity cost when you factor in what you’d spend each month on rent. It may be more affordable in the long run to buy a home now than it is to pay rent while you save up for a 20% down payment.
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Can You Buy A House Without A Down Payment?
Government-backed loans are mortgage loans that the government insures. They present less of a risk to lenders because the government will cover the financial loss if you default on the loan. This means that lenders will typically be more willing to issue lower-than-average interest rates and offer more relaxed down payment requirements.
You can buy a home with no money down if you qualify for a VA loan or a USDA loan. VA loans are mortgage loans for current and former military personnel that meet certain criteria. Surviving spouses are also eligible, in some cases. USDA loans are mortgage loans for homes in qualifying rural and suburban areas.
Both VA loans and USDA loans have a zero-down payment guarantee, but you must meet the minimum qualifications set by the United States Department of Agriculture (USDA) and the Department of Veteran Affairs (VA). Rocket Mortgage® doesn’t offer USDA loans.
What Are The Minimum Down Payment Requirements?
The amount you’ll need for a down payment depends partly on the type of loan you choose. Another factor in the minimum down payment requirement is whether you’re buying a primary residence, secondary residence or investment property.
Down Payment On Your Primary Residence
Down payment requirements for your primary residence, or main home, can vary. It depends on the type of loan you’re applying for and your personal financial situation.
- Conventional loan: Conventional loan requirements for primary residences totally depend on the individual lender. Some lenders might require you to put 5% down, while others may only require 3%. If you have a credit score above 620, your lender may give you access to lower down payment loan options.
- FHA loan: With an FHA loan, you’ll need a down payment of at least 3.5%. To be able to put down the minimum 3.5% FHA down payment, you’ll need a credit score of 580 or higher. If your credit score is between 500 and 579, you’ll be required to put down at least 10%. The minimum credit score required by Rocket Mortgage is 580.
- VA loan: You don’t need a down payment to qualify for a VA loan. Specific length-of-service requirements determine your eligibility, and your discharge reason also plays a role. Visit the Department of Veterans Affairs website to view complete qualification requirements for the VA loan program.
- USDA loan: Like a VA loan, a USDA loan doesn’t require a down payment. But to qualify, your home needs to be in an approved rural or suburban area, and those in your household must meet certain income requirements.
Down Payment On Your Secondary Residence
A second home is a residence you intend to occupy in addition to your primary residence. This can be a vacation home or a property you visit regularly.
- Conventional loan: Conventional loan requirements are higher for people who want to buy a second home. To qualify for a loan on a second home, you’ll need a down payment of at least 10%. Keep in mind that restrictions on what is and isn’t considered a second home may apply. For example, you can only rent the home for up to 180 days a year.
- Government-backed loans: You can’t use an FHA, VA or USDA loan to buy a second property.
Down Payment On Your Investment Property
Investment property is real estate that you buy to earn a return on your investment, either through rental income, the future resale of the property or both.
- Conventional loan: If you buy a home with the sole intention of renting it out, you’ll need a conventional loan. Conventional loan requirements for investment properties are the strictest of any loan type. In most cases, you’ll need a down payment of 20% – 25% to qualify. If you have a credit score above 720, you may qualify for an investment property loan with 15% down.
- FHA loan: You can’t use an FHA loan to buy an investment property.
- VA loan: You can’t use a VA loan to buy an investment property unless you’re financing the purchase of a multifamily home and will use one of the units as your permanent residence.
- USDA loan: You can’t use a USDA loan to buy an investment property.
So, How Much Should You Put Down On A House?
There’s no one-size-fits-all answer. It’s best to start by taking a realistic look at how your down payment will affect how much you’ll pay each month. To get an idea for how a certain down payment will affect your monthly mortgage payment, look at our mortgage calculator. You’ll enter some basic info to get an estimated monthly payment, and you can play around with different down payment amounts to see what works best for you.
Down Payment FAQs
Figuring out how much you should pay as a down payment on a house can be confusing. Here are answers to a few frequently asked questions to help you make the right decision.
What is the standard down payment on a house?
For many home buyers, putting 20% down seems daunting and unrealistic. Luckily, 20% is no longer considered the standard down payment on a house. In fact, the average down payment for first-time home buyers was 6% in 2022, while the typical down payment for repeat buyers was 17%, according to the National Association of REALTORS®.
What is the minimum down payment on a house?
The minimum down payment required for a house will depend largely on the type of loan you choose for your primary or secondary residence or investment property. You won’t have to put any money down if you qualify for a USDA or VA Loan.
Are there other costs to be aware of when buying a home?
In addition to a down payment, you should be prepared to cover closing costs and any necessary moving expenses prior to settling into your new home. You’ll also want to consider ongoing expenses after moving in, including property taxes, homeowners insurance, HOA fees, utilities, maintenance and repair costs, and, of course, your monthly mortgage payment.
Why are down payments required by mortgage lenders?
Mortgage lenders are taking a risk on you when they provide you a loan, because there’s no guarantee you’ll continue to make payments. When you make a down payment, you’re showing your lender that you’re serious about the home and are willing to invest your own money into the property. The down payment also decreases the size of the loan, helping you keep your mortgage payments lower each month.
Can I get assistance with my down payment?
Down payment assistance programs include grants, forgivable loans, deferred-payment loans, low-interest loans and matched savings programs, and they exist for first-time home buyers who might be struggling to fork over a sizable chunk of money upfront. These programs are provided through a government agency or private organization to make home buying more attainable.
The Bottom Line
You no longer need a 20% down payment to buy a home. It’s possible to buy a home through a conventional loan with as little as 3% down, and you may even be able to buy a home with no money down if you qualify for a VA or a USDA loan.
If you have less than a 20% down payment on a conventional loan, you’ll be required to purchase private mortgage insurance and likely pay a higher interest rate as well as face more housing market competition.
Once you’ve saved your down payment and decided which type of mortgage best suits your needs, you’re ready to take action. Start your mortgage application with the Home Loan Experts at Rocket Mortgage.
1 Client will be required to pay a 1% down payment, with the ability to pay a maximum of 3%, and Rocket Mortgage will cover an additional 2% of the client’s purchase price as a down payment. This offer is only available on conventional purchase loans. Primary residence only. Cost of mortgage insurance premium not passed through to client. Offer valid only for home buyers when qualifying income is less than or equal to 80% area median income based on county where property is located. Must lock rate on or after 5/22/2023. Not available with any other discounts or promotions. Offer cannot be retroactively applied to previously closed loans or loans that have a locked rate. This is not a commitment to lend. Rocket Mortgage reserves the right to cancel this offer at any time. Acceptance of this offer constitutes the acceptance of these terms and conditions, which are subject to change at the sole discretion of Rocket Mortgage. Additional restrictions/conditions may apply.
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How Much House Can I Afford? How To Calculate Your Home Affordability And Assess Your Finances
Home Buying - 11-minute read
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How To Buy A House With No Money Down
Home Buying - 11-minute read
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If you’re struggling to come up with a down payment, you may still be able to qualify for a home loan. See your options for buying a house with no money down.