How Much Down Payment Do You Need To Buy A house?

Minneapolis, MN:  When you are thinking of buying a home, one of the biggest considerations is the down payment. So how much do you need for a down payment to buy a house?

Let's investigate your options so you know exactly what you will need.

Dispelling the 20% Down Myth

First, I want to dispel a very common myth, that you NEED 20% down to buy a house.  This simply is not, and has has never been true for the bulk of homebuyers. Yes, a small number of people, primarily very expensive homes, and unique situation may need a large down payment. Buy the typical person does not.

According to a recent survey, the average down payment size was just 7%.

Typical Minimum Down Payment Requirements

The minimum down payment needed to buy a home will depend primarily on what type of home mortgage loan you will be obtaining, and if you are buying a primary home to live in, and investment property to rent out, or a second home / vacation home. Another variable is if you are a first time home buyer or not.

Bigger down payments may have additional benefits, which we will discuss later in this article.

Standard conventional loan:

This loan is the everyday cookie cutter loan most people get. The typical starting down payment for this program is just

• 5% down for a primary home
• 10% down for a second home
• 20% down for an investment property

If you are a first time home buyer, you can get away with as little as 3% down on a primary home, using specialty programs like Homeready or Home Possible.

Jumbo mortgage loans are one of the few home loans that typically requires a 20% down payment. These are larger loan amounts, that are above the conforming loan amount limit. This is a lot of mortgage jargon, but in most of the county, this means loans over $647,000.

NON-QM loans, which are loans that use alternative income documentation are the other type of loan that usually requires a 20% down payment due to the additional risk on these programs of the home buyer not documenting their income the traditional way. 

You can visit on NO DOC, NON-QM loan page for more information on these types of loans.

FHA Loans:

FHA home loans that mortgage lenders offer are backed by the U.S. Government, and only require a minimum down payment of just 3.50% if your credit score is higher than 580.  If your credit score is below 580, the minimum down payment is 10% down.

Note that while the FHA loan program says lenders can potentially lend on lower credit score, if your credit score is below 620, you may have a hard time getting a loan approval.

Read more on how credit scores effect getting a mortgage.

One other cool thing with an FHA loan, is that when buying a multi-family home, where you will live in one unit, the FHA loan down payment required is still just 3.50%, while a conventional loan would be at least 20% down. 

VA Loans:

The VA loan, available to our active and retired U.S. Military personal have no down payment requirement. Yup, zero down!

USDA Loans:

The USDA Rural Housing Loan is for income qualified people wanting to buy a home in a rural area of the county. The USDA loan is a zero down program, and does not require any down payment.

Visit our special USDA loan page for more information on income and location qualification for this program.

Down Payment Assistance Programs:

Down payment assistance programs are typically available for first time home buyers, and in some cases, even those who have already owned a home. Most of these programs have household income limitations, but let the home buyers out of pocket down payment can be  as little as $1,000 to $2,000.

Learn more about our Minnesota Down payment Assistance programs.

Bigger Down Payments VS Smaller Down Payments?

There are many variables for home buyers to think about if you have more down payment money available above and beyond the minimum amounts you absolutely need. Here are some additional considerations to think about:

• Lower Monthly Payments: Obviously the bigger the down payment today will result in a smaller monthly payment on your loan.
• Better Interest Rates: Some programs will reward the home buyer with a slightly better interest rate if you put more down. You can see current national mortgage interest averages here.
• Mortgage Insurance: when you put less than 20% down, most mortgage loans will require an additional monthly cost known as mortgage insurance.  the cost of the additional insurance varies by the size of your own payment. So a small 5% down payment will have higher mortgage insurance costs than a 10% down, or 15% down loan.  Note that VA loans never have mortgage insurance.

Get Pre-Qualified:

Ultimately, my best advice to home buyers is to complete a full application with your local mortgage lender. A good, experienced Loan Officer can review your situation, and then help guide you to the answer of what loan, and how much down payment will work best for you.

We lend in Minnesota, Wisconsin, Iowa, North Dakota, and South Dakota, and would love to help you.  Simply call us at (651) 552-3681, or get started with a secure online mortgage loan application.