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Many potential homebuyers think they need a 20% down payment to get a home loan. And though that’s often the most beneficial scenario for a number of reasons, many homebuyers may qualify for a significantly smaller down payment — or none at all.
How much do I need for a down payment?
The minimum amount you’ll need for a down payment depends on what type of loan you’re getting. Most loans require a credit score higher than 620, though some government-backed loans accept lower.
Yes, there can be. Making a small down payment can lead to higher interest rates, which can make your home cost a lot more in the long run.
Plus, if you put down less than 20% on a home with a conventional loan, you’ll likely need to have private mortgage insurance (PMI). PMI generally costs anywhere from 0.5% to 1% of the loan amount annually on a conventional loan.
Mortgage insurance is required for FHA and USDA loans — no matter your down payment amount. FHA loans have a 1.75% upfront mortgage insurance and an annual MIP of 0.8% or 0.85% of the loan amount. For USDA loans, you’ll need 1% upfront and 0.35% annually.
In this example, you’d want to save between $15,000 and $60,000 for a down payment on a $300,000 home. While $15,000 is the minimum, the more you put down, the less you’ll pay in interest over the life of the loan.
That depends on both your financial situation and how much you want to get into a house right now.
If you’re paying through the nose for a rental and your monthly mortgage would be significantly less, it may be worth it to buy a home sooner with what you have saved, even with the PMI and higher interest rate.
But if you can save up a bit longer, it can save you a lot of money in the long run. Alternatively, you can always refinance your mortgage to drop PMI once an appraiser can verify that you’ve built 20% equity.
If you qualify for a VA or USDA loan, you can buy a house without a down payment. But for FHA and conventional loans, you’ll generally need to put between 3% and 5% down — the more you can comfortably pay upfront, the better. To find out which scenario will work best for you, compare mortgage options.
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