How Much Down Payment to Buy a House?
When you buy a home, one of the biggest up-front investment is the down payment. Not to be confused with closing costs, the down payment is the portion of the purchase price that you pay upfront at closing. Generally, if you put less money down on a home at closing, you’ll pay more in fees and interest over the loan’s lifetime, compared to putting more money down, and vice versa.
4 Ways to Save More for a Down Payment
Reduce Your Spending
It may seem like an obvious thing to do, but this is one of the biggest purchases you will ever make. So try to hold off on buying that new car with the big payment. Save where you can. As they say, “a penny saved is a penny earned”!
Pay Off Any Credit Cards or High-Interest Debt
For example, if you are paying 24% interest on your credit card on $1000 owed, that is an extra $240 fee that you could have saved towards your down payment.
Get a Second Job
Everyone needs to find that work-life balance. So a second job may really put a strain on your emotional or personal well-being. But if it means the difference between buying the home of your dreams, maybe it’s worth doing for a few years.
Set up a Regular Savings Deduction
If you can set up some automation in your bank account where a certain portion gets transferred to your savings every paycheck or period of time, then you could really be on your way to saving enough for your down payment. Try to live with the money you have leftover, and not rack up any credit card debt. You might surprise yourself with how much you can save.
Residential Properties
| Loan Types | Minimum Down Payment Needed |
|---|---|
| Conventional |
10% down payment For example, for a $600,000 purchase price, a $540,000 loan amount, with a term of 360 monthly payments would have a 6.147% APR, and a monthly payment of principle, interest, and include Lender Paid Mortgage Insurance of $3,288.78 as of 4/22/2022. Rate may change or not be available at the time of loan commitment or lock-in. |
|
Refers to loans that are over the Fannie Mae conforming loan limits for that state & county. |
10% down payment For example, for a $1,000,000 purchase price, a $900,000 loan amount, with a term of 360 monthly payments would have a 7.046% APR, and a monthly payment of $5,541.45 which includes principle, interest, and Lender Paid Mortgage Insurance as of 4/22/2022. Rate may change or not be available at the time of loan commitment or lock-in. |
| FHA |
3.5% down payment for credit scores of 580+ For example, for a $500,000 purchase price, a $487,500 loan amount, with a term of 360 monthly payments would have a 7.046% APR, and a monthly payment of $2,061.60 which includes principle & interest plus about $182.81 in monthly mortgage Insurance as of 4/22/2022. Rate may change or not be available at the time of loan commitment or lock-in. 10% down payment for Credit scores of 500+ For example, for a $500,000 purchase price, a $450,000 loan amount, with a term of 360 monthly payments would have a 4.667% APR, and a monthly payment of $2,365.64 which includes principle & interest plus about $182.81 in monthly mortgage Insurance as of 4/22/2022. Rate may change or not be available at the time of loan commitment or lock-in. |
| Non-Prime |
10% down payment For example, for a $600,000 purchase price, $540,000 loan amount, with a term of 360 monthly payments would have an 8.257% APR, and a monthly payment of principle and interest of $4,057. This is a higher rate and cost than a conventional loan but this allows self-employed borrowers to provide 12-24 months bank statements instead of traditional income documentation like tax returns. 4/22/2022. Rate may change or not be available at the time of loan commitment or lock-in. |
| Reverse | Down payment based on age. See details. |
Investment Properties
| Loan Types | Typical Minimum Credit Scores |
|---|---|
| Conventional | 15% |
| Jumbo | 20% |
| Non-Prime | 20% |
Frequently Asked Questions
How Does My Down Payment Impact My Offer(s)?
When you are on the hunt for the right home, time is of the essence. Homes at entry-level price ranges typically sell quickly, and you want to put your best foot forward when making an offer, because you will probably have competition. When markets are competitive and sellers receive multiple offers, they want to see the buyers’ best offers, including a sizable down payment. From a seller’s viewpoint, buyers who have more money to put down are more attractive because it is less risky to the seller and
A higher down payment can indicate to a seller that you have enough cash on hand and solid finances to get a final loan approval (and get to the closing table) without a hitch. Also, a higher down payment could beat out other offers that ask for sellers to pay closing costs or offer below the asking price. Someone with a sizable down payment is unlikely to request such assistance, and sellers are more likely to work with a buyer who has the money and motivation to see the purchase through with minimal haggling.
How Much House Can You Afford?
When you are pre-approved for a mortgage, a lender will tell you the maximum loan amount for which you qualify, based on responses in your application. Your mortgage application asks about your estimated down payment amount, income, employment, debts, and assets. A lender also pulls your credit report and credit score. All of these factors influence a lender’s decision about whether to lend you money for a home purchase, how much money, and under what terms and conditions.
As a general guideline, many prospective homeowners can afford to mortgage a property that costs between 2 and 2.5 times their gross income. For example, if you earn $100,000 per year, you can afford a house between $200,000 and $250,000.
Rather than simply borrowing the maximum loan amount a lender approves, you’re better served by evaluating your estimated monthly mortgage payment. Say you get approved for a $300,000 loan. If your monthly mortgage payment and other monthly debts exceed 43% of your gross monthly income you might have trouble repaying your loan if times get tight. In other words, be cautious about buying more house than you can reasonably afford.
If you’ve been renting for some time—or you already own a home and are looking to buy again—you likely have a strong handle on the monthly mortgage payment you can afford. Renters should keep in mind that owning a home or condo includes additional expenses such as property taxes, maintenance, insurance, possible Home Owners Association (HOA) dues, and unexpected repairs.
Beyond buying a house, you may also want to contribute to other financial goals such as saving for retirement, starting a family, shoring up an emergency savings fund, and paying down debt. Taking on too high of a monthly mortgage payment will eat up cash that could otherwise go toward some of these important goals.
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