How much do I need for a mortgage down payment?

A small down payment means a pricier mortgage in the long run.

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Some homebuyers may qualify for a small mortgage down payment — or no down payment at all. But it’s not always the best idea.

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.

  • VA loan. No down payment required
  • USDA loan. No down payment required.
  • Fannie Mae HomeReady loan. 3%.
  • Freddie Mac Home Possible loan. 3%.
  • FHA loan. 3.5%.
  • Conventional mortgage. Generally at least 5%, but some banks and credit unions may require more.

Are there any downsides to buying property with a low down payment?

Yes. Putting down 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 traditional or FHA loan, you’ll likely need to take out private mortgage insurance (PMI). PMI generally costs anywhere from 0.5% to 1% of the mortgage amount annually, so it can significantly increase what you’re paying for your home.

How do I determine my down payment size and borrowing amount?

The first step is to figure out how big of a mortgage you can comfortably afford. To do that, you can put your income and expenses into the borrowing calculator below. That will give you a rough guide to how much you might be eligible to borrow.

Now let’s work backwards to figure out the price range. Let’s imagine your borrowing power suggests you can afford a loan of $500,000. You can figure out what down payment you need to save up for by doing the math.

20% down payment

  • $500,000 x 0.2 = $100,000

5% down payment

  • $500,000 x 0.05 = $25,000

In this example, you’d want to save up between $25,000 and $100,000 to buy a home. The $25,000 mark is the earliest you’d be able to buy a home with a conventional mortgage, but the closer you got to $100,000, the more you’d save.

Taxes

When you buy a home, you may be required to pay a real estate transfer tax. These taxes can be charged by states, counties and cities, and in some case you may have to pay to both your state and city or county government.

These taxes can range from nonexistent in some places to thousands of dollars in others. Before buying a home, look up how much you’ll need to pay in transfer taxes and factor it into your loan amount.

Other upfront costs

You’ll also need to pay for an inspection and potentially closing costs. In many cases, you may be able to have the seller pay some or all of the closing costs, but it’s not guaranteed — and closing costs can run in the thousands.

Is it worth paying PMI to buy a property faster?

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 have the ability to save up a bit longer, it can save you a lot of money in the long run.

Do I have to pay all my PMI costs upfront?

No, you’ll pay your private mortgage insurance along with your monthly mortgage payment.

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Bottom line

If you qualify for a VA or USDA loan, you can buy a house without any down payment. But for a conventional mortgage, you’ll generally need at least 5% down — and a bigger down payment is better.

To find out what option will work best for you, compare mortgage options.

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