What Is The Minimum Down Payment I Need To Purchase A Home?
This is one of the top questions we receive from our clients, because it is usually one of the biggest obstacles to purchasing a home. A down payment is defined as an initial payment by the borrower, usually calculated as a percentage of the sales price of the property. Down payments will vary based on the different loan programs. Below are the various loan programs we work with and the required minimum down payment amounts.
The most common loan type, Conventional loan programs have a minimum down payment of 5%. There is a 3% down payment option available, but it comes with additional restrictions. For a conventional loan, any down payment less than 20% will require Private Mortgage Insurance, or PMI. PMI will automatically fall off when the loan amount to estimated value of the home ratio (Loan-to-value, or LTV for short) reaches 78%, but you can request for it to be removed as early as 80% LTV.
FHA loans are guaranteed by the Federal Housing Administration. With this guarantee, the down payment requirement is reduced to 3.5%. There is a Mortgage Insurance Premium (MIP) on this loan type as well, similar to Conventional's PMI, however the main difference is that MIP is for the life of the loan unless you put 10% or more down; in which case it falls off after 11 years. There is one more fee associated with the FHA loan that is not associated with Conventional loans - the Up Front Mortgage Insurance Premium (UFMIP). This is a one time fee paid at the time of closing and should be considered as a closing cost.
VA loans are backed by the U.S. Department of Veteran Affairs and offer benefits to both former and active military personnel, and their family. This program also allows the homebuyer to finance 100% of the property value. There is a funding fee with this program; however the fee can be financed with the rest of the loan amount so that it is possible to purchase the home with zero down payment. There are several nuances to this program such as eligibility criteria, funding fee variations, etc. It is best to visit our VA Mortgage Loan page. As your mortgage experts, we would also be happy to explain further.
USDA (Yes, as in the beef.)
USDA loans are backed by - you guessed it - the United States Department of Agriculture. The loan program was originally created to encourage people to live in rural areas, which is certainly something that is beneficial to the USDA. As with a VA loan, the homebuyer can finance the entire value (100%) of the property, as well as have the closing costs rolled into the loan, creating a possible zero down payment/zero closing cost scenario. There are, however, income limitations, as well as restrictions on which cities/counties are eligible for a USDA loan. For more thorough details we recommend visiting our USDA Mortgage Loans page, or reaching out to us personally.
What About Down Payment Assistance?
There are a multitude of down payment assistance programs in our area, and we are extremely knowledgeable about them. From SETH and TSAHC, to municipal bond programs and more. Each one comes with its own unique guidelines and restrictions, so it is based to speak with us first so we can see if you qualify and direct you towards the right program for you.