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The amount of money you need for a down payment depends on the overall cost of the house as well as the type of loan you’re approved for. VA and USDA loans can be as low as 0% while conventional and FHA loans range between 3%and 10%. Jumbo loans typically require a 10%down payment or more.
Buying a home is a goal for many Americans. The consumer and market data experts at Statista expect over 6 million homes will sell in 2023, which is a great sign for the housing market. If you’re one of the millions of Americans planning on buying a home, the first question you may have is, “How much do I need to put down on a house?”
Today, you’ll learn about how much you’ll need to put down before buying a home, and it may not be as much as you think. We’ll also go over how your down payment affects your offer as well as the pros and cons of making a larger down payment to help you make the right decisions before purchasing your dream home.
A down payment is a certain percentage of the purchase price that you pay up front to secure a property, and the rest is paid in installments as part of a loan. Buying a home is a major purchase that can be hundreds of thousands or even millions of dollars, and if you’re like most people, you don’t have that much cash lying around. A down payment is much more realistic amount to pay up front, and it also lessens the risk of the lender by showing you’re more likely to have the ability to make your mortgage payments on time.
It’s a myth that you have to put down 20% when buying a home. A 2022 National Association of Realtors study found that 35% of people believe you need a 16-20% down payment to buy a home, but that’s not the case at all.
The data collected was from 1989 to 2021, and it shows that the typical down payment was 7% for first-time homebuyers and 3.5% for those getting an FHA loan.
The study also showed that repeat buyers put down an average of 17%, and this is because, based on their experience, they know the benefits of a larger down payment.
Although buyers don’t have to put down 20%, there are a few pros and cons to doing so:
Pros:
Cons:
The minimum down payment for a house can vary depending on which type of loan you’re approved for.
If you know how much house you can afford and are in a good financial situation, a larger down payment is typically a better option. While 20% may not be achievable, there are still benefits to making a down payment that’s higher than the minimum.
The following are some of the benefits to a larger down payment:
How much you put down on a home is going to be different for everybody. Not only will it depend on your personal situation and financial goals, but it will also depend on how competitive you want to be with your offer. When buying a home, there may be multiple offers, and a larger down payment can signal to sellers that you’re able to follow through with closing the deal.
A larger down payment also means less money for other financial goals. In that same study from the National Association of Realtors, they found the second most common source of down payments comes from loans. If you’re already in debt when looking to buy a house, you may want to put down a lower down payment.
Here are some other considerations that may help you decide how much to put down on a house:
There are additional nuances to down payments on a home, so we’ve answered some common questions below.
If you’re in a good financial position and can afford a 20% down payment, there are many benefits to putting that amount down. It can help lower your interest rates and monthly payments and may even help you close the deal with the seller.
A $10,000 down payment might be enough for a home. According to the National Association of Realtors, down payments are based on a percentage of a home with an average down payment of 7-17%.
The normal down payment amount for a house varies depending on the house’s price and loan type.
The most common type of loan is a conventional loan, and you may put 5% down for a 30-year fixed-rate mortgage. For a $400,000 home, the down payment would be $20,000.
Yes. There are government-backed loans like VA loans or USDA loans that don’t require a down payment if you qualify.
In addition to the down payment for a home, your credit score plays a big role in the overall cost of a home as well as the type of loan you can qualify for. For example, the FHA has credit requirements, and you need a score of 580 to qualify for a 3.5% down payment.
If you’re unsure where you stand with your credit, you can sign up and get your free credit report card right at Credit.com. We also provide additional services through our ExtraCredit® program that can help you monitor your credit score in addition to other features as you get ready to buy a home.
December 13, 2023
Mortgages