“How much money do I need to put down to purchase a house?” This is a common question asked by many home buyers. The answer to this question will be dictated by your lender, the type of loan, your credit score, and potentially other factors. According to various studies in recent years, the average down payment on a home was between 7% – 12%, or so. For first-time home buyers, the average is actually less than 7%. Some loan programs allow you to put 0% down while others require just 3% down for a conventional loan. But there’s a catch: lenders typically charge a higher interest rate to mitigate their risk, which means you’ll pay more interest over the life of the loan.
When you get a conventional mortgage with a down payment of less than 20%, you have to get private mortgage insurance (PMI). This is essentially a premium that you need to pay if you are not able to afford a down payment of 20% or more. The monthly cost of PMI varies, depending on your credit score, the size of the down payment and the loan amount. Some lenders might waive PMI, but they often charge a higher interest rate to account for the greater risk.
In addition to conventional loans, other programs are available to certain borrowers. For example, first-time home buyers may opt for a FHA loan. The minimum down payment for these loans is typically around 3.5%, thus allowing first-time home buyers a greater opportunity at home ownership. There’s a notable drawback to putting down less than 10% on an FHA loan, however. When you do this, you cannot cancel annual mortgage insurance premiums. You’ll pay those for the life of the loan or until you refinance or sell.
VA & USDA Loans
The U.S. Department of Veterans Affairs and the U.S. Department of Agriculture guarantee zero-down payment loans for qualified homebuyers.
VA loans are available to most members of the armed forces and veterans. USDA loans are available in designated rural areas. With both loan types, you borrow from a regular lender, but the VA or the USDA guarantees the loan. There is no mortgage insurance, but you pay a guarantee fee.
In closing, it is always recommended that you speak with a mortgage broker prior to beginning your home search process. In doing this, you will be able to get pre-qualified for a certain amount & this will allow for a more efficient home search process. Of course, other best practices are to save as much money as possible, while also eliminating any debt that you may have. In addition, it is advisable to not open any new lines of credit during the time preceding your home search and loan approval process. If you have not done so, we would also recommend downloading the free Live South Florida Realty, Inc. MLS app to your mobile device. In addition to great home search tools, this app also contains a mortgage calculator. This will allow you to run some hypothetical numbers to get an idea of what your payments may look like. The app can be downloaded here: