How much do I need for a mortgage down payment?

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.

• VA loan. No down payment
• USDA loan. No down payment
• Fannie Mae HomeReady loan. 3%
• Freddie Mac Home Possible loan. 3%.
• FHA loan. 3.5%
• Conventional mortgage. Generally 3% to 5%

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

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.

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

1. Based on your income and expenses, calculate a mortgage payment you can comfortably afford. For a rough estimate as to how much you might be eligible to borrow, put your income and expenses into the borrowing calculator below.
2. Now, take your borrowing power and multiply it by the minimum down payment amount for your loan type. For example, let’s say your borrowing power suggests a loan of $300,000.
   20% down payment

   • $300,000 x 0.20 = $60,000

   5% down payment

   • $300,000 x 0.05 = $15,000

   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.

3. Consider saving for other added expenses.
   • Taxes. When you buy a home, you may be required to pay a real estate transfer tax. These taxes can range from none in some places, to thousands of dollars in others. Before buying a home, research the transfer tax and factor it into your loan amount.
   • Closing costs. When you apply for a loan, closing costs can run about 2% to 5% of the loan amount. That’s between $6,000 to $15,000 on a $300,000 mortgage.
   • Cash reserves. It’s not recommended to clear out your bank accounts for a down payment. Most lenders require at least two months of mortgage payments available in the bank for a rainy day. So if your monthly payment was $1,000, your lender might want to see $2,000, excluding closing costs, in the bank before closing.

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 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.

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Bottom line

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.

Frequently asked questions

• What's the average down payment for a first-time homebuyer?

  The average first-time homebuyer puts 7% down and finances the other 93%, according to the National Association of Realtors.

• What's the average down payment for a repeat homebuyer?

  The average homebuyer who has owned at least one home puts 16% down and finances 84%, according to the National Association of Realtors.

• Do I have to pay all my PMI costs upfront?

  No. For a conventional loan, you’ll pay your private mortgage insurance along with your monthly mortgage payment. For government-insured loans — like FHA — you’ll need to pay a portion upfront at closing, then monthly.