Buying a house can be a financially challenging time. There are some variables that you can plan ahead for like your down payment. The average down payment on a house is 5-6% but is that how much you should put down?
How much should I put down on a house?
The amount you put down on a house is based on where you stand financially. There could be some advantages of putting a larger house down payment. For example, a larger down payment could mean a more manageable monthly mortgage payment.
You could also take advantage of a lower mortgage rate as your loan is smaller so it appears less risky. Finally, you would pay less interest overtime. A larger down payment means a lower loan amount to pay interest on over the course of the loan.
Can I buy a home with no down payment?
Some loans allow down payments that are as little as 3% and in some cases, you can find a loan that requires no money down at all. There are some requirements to qualify for no down payment. If you are a first-time home buyer and an active duty service member or a Veteran, you may qualify for a VA loan.
If that’s the case, VA loans qualify for no down payment. There are some other requirements you would want to check but there are also some other great benefits. Another loan option that requires no down payment is a loan from the United States Department of Agriculture, known as a USDA loan.
These loans are offered by the government as an incentive to move into more rural areas. There are a few additional requirements to qualify for this loan. The USDA website allows you to check areas that are considered rural in your state.
Look into the requirements to better understand if you qualify. Then, check to see if an area you are considering buying a house in is on the list. You might be pleasantly surprised by what counts as rural.
Mortgage down payment considerations
There are a few different down payment options to consider to help you determine the best mortgage down payment for you.
Loan to value ratio
The loan to value ratio, or LTV, compares the amount of your mortgage with the appraised amount of the property. Lenders sometimes use the LTV to measure risk. If you have a smaller down payment, you will have a larger loan amount.
This means your loan could appear riskier to lenders, especially if it is more than the house is appraised for. Sometimes lenders can use this to determine if they will require private mortgage insurance, or PMI, until your LTV reaches a predetermined percentage.
Mortgage and interest
It is worth considering that if you put down more money upfront, your total loan cost will be lower. This means you will have to borrow less and essentially pay less interest over the course of your loan.
Over a 30 year loan, for example, this could be some serious savings. You could also consider a lower down payment but pay off the mortgage loan sooner.
This might be an ideal situation if you know your career path or financial options will be better in the future as opposed to while you are looking. Be sure to go over the details and any restrictions to this option with your loan servicer.
Down payment minimums
Some loans have a down payment minimum and they are different depending on the type of loan. For most conventional loans, the minimum is 3%. You can explore loan options that fit into your needs. If you would prefer a smaller down payment amount, look for a loan that can accommodate this percentage.
Time to save
If you are considering a larger house down payment amount that standard, you might want to consider your savings plan and how long it takes to save. If you aren’t in a rush to buy then this might not be as much of a factor for you.
However, if you are on a shorter time limit to buy, consider how long it will take you to save 15-20%. This could delay your entry into the housing market and you could potentially run into a market that is less favorable for purchasing.
Is buying a home the right choice for me?
There are a lot of factors to consider when deciding if now is the time to purchase a home or even if owning a home is the right choice for you. According to the census, about 65% of Americans own a home but we also know this is shifting.
You want to consider debt, income, long term career goals, and even your life plan when thinking about purchasing a home. Do you plan on leaving the state? Would you like to relocate for your career? You could always start a savings plan as if you do plan to purchase a home and make adjustments if you change your mind.
How much is enough?
The amount of your mortgage down payment depends on a few variables, but ultimately it is up to where you stand financially. Though the standard for a conventional loan could be 3% or a, a 10% down payment may be better for you in the long run. Make sure you are aware of your options before making a decision but ultimately–the choice is yours!
FAQ
What’s the smallest down payment you can make on a house?
The smallest amount is usually 3% but some loans qualify for less.
Do you have to have money to put down on a house?
The standard conventional loan requires at least 3% down. However, you might qualify for a loan that does not require any money down on a house.
Is 20% always the norm for a house down payment?
There was a time when 20% was the norm for a house down payment but that is no longer the case.
