What First-Time Home Buyers Need To Know About Down Payments


So, you’re about to purchase a home for the first time. You’ve heard that purchasing a home is a great investment in your future and for your portfolio. Also, it’s great to have a place that you can truly call your own.

However, you don’t know how much you need to put down for a down payment. While 20 percent is the general rule of thumb, most people don’t put this much down on a home. In fact, a recent LA Times article stated that the 20 percent down payment is dead, especially for first time home buyers, not only because several banks and lending programs require less but also because of less than stellar credit history.

Here are some general guidelines to how much you should put down when purchasing a home and how to save money doing it.

How Much Do I Need To Save For A Down Payment?

Generally, you’ll want to save anywhere from 3-20 percent for your down payment in order to qualify for a conventional 30-year loan. If you’re looking to qualify for a jumbo loan, which is a loan that is higher than the conforming loan limits set by the Federal Housing Finance Agency, then you’ll need at least a 10 percent down payment.

Even though you can put less than 20 percent as a down payment on conventional loans, you’ll need to pay private mortgage insurance until you pay off 20 percent of the loan. You’ll need to calculate this fee into your mortgage payments when evaluating your budget.

How To Put Little To No Money Down On A New Home

It is possible to put 3.5 percent down on your home if you get a Federal Housing Administration loan. Because this loan only requires a decent-but-not-perfect credit score, this loan is very attractive to first-time home buyers.

This type of loan is federally issued to reduce the risk of loss to traditional banks for taking on less than perfect mortgage candidates. Other low federal down payment options are HomeReady and Conventional 97 mortgages, which allow home buyers to put down just three percent. These mortgages also allow for low to moderate credit worthy candidates to obtain homes. This allows people to purchase homes in low-income and disaster-devastated communities.

If you’re a qualified veteran, you should be able to purchase a home with no money down. The Veterans Affairs offers a VA loan and the USDA offers a loan that requires no money down.

So, as you can see depending on your qualifications, you may be able to purchase a home with as little as no money to three percent down. There are federal programs that allow you not only to put a small amount of money down, but also to qualify for a mortgage without having perfect credit.

Don’t let the prospect of a huge 20 percent down payment keep you from trying to purchase your dream home. You do have options!