The Minimum Down Payment

This is often the most expensive venture one will take on in their entire life. It is therefore not surprising that many Americans have major difficulties saving for their down payments. A 20% down payment is a great way to save money, but it is not required to purchase a home.

Sources online indicate that 52 percent of buyers have put down less than 20% to purchase a new home.

A conventional loan (30-year fixed mortgage) will require you to pay cash between 3 and 20 percent of the purchase price. There are exceptions. You might be eligible for a home loan with zero down payment through Veterans Affairs (VA loans) or USDA loan programs.

What Is A Downpayment?

A down payment is the money you pay upfront to purchase a house. The down payment is often combined with a loan to pay the full purchase price. How much loan you can get will depend on your credit score, credit history, and total debt.

Our affordability calculator is a great tool to determine how much you can afford, based on your annual income and down payment. In addition, the calculator will consider your monthly debts, interest rate, and other settings to give you a more accurate result on your home's price.

An Ideal Down Payment Is 20 percent

You can reap many benefits by making a 20% down payment. Private mortgage insurance (PMI) can be avoided. It can help you qualify for a lower interest rate, which could save you thousands of dollars over your lifetime. Additionally, it will allow you to build more equity faster and will reduce your monthly mortgage payment. Finally, a higher down payment could help you be more competitive and stand out among other buyers depending on where you live.

Although 20 percent is not required for homeownership, many buyers will put down more than that. The West (47% of buyers put down 20% or less) and the Northeast (52% set down 20% or greater). To win the home, sellers must make a better offer because of tighter market conditions.

It Is Difficult To Prepare Down Payments.

While some buyers are able to put down more than 20% upfront, that doesn't mean they can't come up with the money. Online sources indicate that 68% of renters consider saving money to pay down their downpayment the biggest obstacle to buying a house.

Twenty-nine percent of buyers have difficulty saving money for a downpayment. 53% of buyers traditionally save money. Nearly 25% save money by using multiple sources to pay down their down payment.

Some buyers have found creative ways to finance their down payments. For example, you can receive gifts from your loved ones, sell stocks or other investments, or use retirement funds.

Because they can use part of the proceeds from their home to make their down payment, recurring buyers are more likely to pay a higher down payment than first-time buyers. First-time buyers are more inclined than second-time buyers to deposit between 3 to 9 percent. Online sources indicate that only 37% of first-time buyers deposit at least 20%.

Lending With Less Than 20% Down

It is not easy to get a zero-down loan. You must also meet certain criteria. However, some programs offer lower down payments.

The Federal Housing Administration (FHA loan) is one of the most sought-after low-down payment loans. It allows for a 3.5% down payment. However, this program does have one problem: the lender will still be protected by mortgage insurance premiums.

Fannie Mae offers two loans: Conventional 97 or HomeReady mortgages. Both allow buyers to make a down payment of only 3 percent. Creditworthy, low- to moderate-income borrowers can use HomeReady mortgages. These mortgages also offer expanded eligibility for financing homes in low-income, minority, and disaster-affected areas. In addition, conventional 97 mortgages are available to help creditworthy homebuyers who might otherwise be eligible but do not have the funds to make a larger downpayment.

There are state-and-local assistance programs that will help you buy a home and pay a low down payment, in addition to the USDA, Fannie Mae, FHA, and VA loan types. You can also find incentives in towns to move there. These include student loan forgiveness and free lots to build on. While these programs will not pay your downpayment, they can help you save money if the funds are available.