How Much Down Payment is Needed to Buy a House?

How Much Down Payment is Needed to Buy a House?

This question depends on how much home you plan to buy and what type of mortgage you qualify for and choose. A down payment is the buyer’s cash contribution towards the total purchase price while the rest is typically financed through a conventional or government loan that is paid off over time. Here are the details on loan types available for Rockport Texas real estate and how much down payment is recommended for different situations.

Typical Types of Home Loans

Most home loans are either conventional mortgages or government sponsored programs.

Conventional Loans:  There are fixed-rate mortgages with interest that stays the same throughout the loan term, and there are adjustable-rate mortgages (ARMs) that have adjusting rates throughout the loan term. These loans generally require a 5-20% down payment depending on the borrower’s credit history and loan amount.

Government Loans

These are sponsored and guaranteed loans from the government that are available to qualified buyers.

Federal Housing Administration (FHA) Loans:  These loans allow those with poor credit to pay lower down payments, and they also cover private mortgage insurance (PMI).

Veteran Affairs Loans: Veterans and surviving spouses receive favorable loan terms that often require no down payment and they cover PMI.

U.S. Department of Agriculture (USDA):  Another low-to-medium income program for buyers looking for homes in rural areas. Low to no down payment, but PMI payments are buyer’s responsibility.

How Much Down Payment Should You Save?

The most commonly stated amount by the pros is 20 percent, especially for conventional loans. This amount allows buyers to avoid that costly PMI payment in addition to the mortgage. However, there are many who must put down less than 20 percent. In these cases, expect to pay PMI until the balance reaches 78% of the home’s original value through a conventional loan. As stated, some government loans cover PMI regardless of down payment amount. The bottom line is, put down as much as you can afford to into a down payment. This lowers overall interest, reduces payments and can alleviate the need for private mortgage insurance.

Categories: Real Estate

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