How Much Is A Down Payment On A House?

Starting your home search can be an exciting time. To help you feel prepared for the home buying process, you should consider how much house you can afford before falling in love with a property. Determining your down payment is a big part of that. Down payments can sometimes seem intimidating, but rest assured there are down payment options tailored to meet the needs of many different types of borrowers.

What Is A Down Payment?

A mortgage will help you cover the majority of the cost to buy a house, but depending on the type of loan you get, lenders may not cover the entire cost. That’s where your down payment comes in. The down payment is the cash you contribute to the purchase price of a home. This serves two key purposes: 1. It bridges the gap between the loan amount and the purchase price of the home. 2. It shows that you have the funds to complete the purchase of a home. For these two key reasons, the down payment is a critical part of the  home-buying process.

To illustrate the purpose of a down payment, let’s look at a simplified example. Let’s say you are interested in buying a $400,000 house. The bank is willing to lend you 80% of that ($320,000) in the form of a home mortgage. That means your down payment would be the remaining 20% ($80,000).

Do You Have To Put 20% Down On A House?

The short answer is no. A 20% down payment, although helpful, isn’t required with standard, non-jumbo mortgages. But, the more you put down up front, the less you have to pay each month. In addition, a 20% down payment on a conventional loan can result in a lower mortgage payment because it means you won’t have to pay private mortgage insurance (PMI).

Beyond conventional loans, there are a number of other loans that require a lower, or even no, down payment minimum. For example, a VA loan is a loan backed by the Department of Veterans Affairs (VA) available to people who served or are actively serving in the Armed Forces or National Guard (as well as their spouses). VA loans require no down payment.  A VA loan is just one of many examples of loans that don't require you to shell out 20% of the purchase price to secure a home loan.

What’s The Minimum Down Payment For A House?

Understanding the minimum down payment required can help you narrow down which type of home loan is right for you. Let’s take a look at the 5 most common types of home loans and what the minimum down payment is for each type.

Now that you know the down payment minimums for each type of loan, let’s take a closer look at defining these types of home mortgages.

FHA Loans

An FHA loan is backed by the Federal Housing Authority (FHA), a branch of the U.S government, and is intended to help first-time home buyers get into their first home. The FHA provides this help by reducing the amount of money down as well as the credit requirements compared to a conventional loan.  Most lenders require at least a 580 credit score for an FHA loan. They also require that the house be a primary home, that you have proof of income and employment, and for your debt-to-income ratio (DTI) to be lower than 43%. FHA loans also often have income limits, which may mean some homes might be priced too high to use an FHA loan.

Conventional Loans

As previously discussed, a conventional loan is the standard loan used for most home buyers. It is not backed by a government agency, and usually requires a minimum down payment of 20%. Conventional loans have specific minimum guidelines, so you will need to have a credit score of at least 620 and a debt-to-income ratio (DTI) below 50%, among other requirements. Lenders may have more strict guidelines, so be sure to clarify what your lender requires.

VA Loans

As mentioned before, a VA loan is available for service members and their families. They can be a great loan option if you qualify, offering no minimum down payment and reasonable requirements like a minimum credit score of 580 and DTI ratio at or below 45%. If you qualify, a VA loan is a great way to get into a home.

USDA Loans

A USDA loan is another government backed loan provided by the U.S. Department of Agriculture. It is geared toward helping low-income homebuyers purchase houses in specific rural and urban areas that are in need of development. To qualify for a USDA loan, your income cannot be higher than 115% of the area’s median income. In addition, your DTI must be 50% or less and you need to have a credit score of 640 or higher. There is also a fee of up to 3.5 percent of the purchase price called a USDA upfront guarantee fee.

Please note, our friends at Rocket Mortgage^® do not offer USDA loans at this time.

Jumbo Loans

Jumbo loans apply to large purchase price properties. When the cost to buy a home exceeds conventional loan limits, it’s time to consider a jumbo loan. These loans are very restrictive and often require a credit score of 760, proof of high income, high closing costs and proof of a large cash reserve. Discuss with your desired lender whether you could qualify for a jumbo loan.

Pros And Cons Of Making A Bigger Down Payment

Let’s take a look at some of the pros and cons of a big down payment so you can consider which way you might lean when it comes time to put down the cash for your new home.

How Much Should You Put Down On A House?

Deciding on the right amount of money to put down on your new house is unique to you. Everyone’s financial situation and needs for a new home are different, so consider what is going to be best for you now and in the future. A good way to start is by following these steps:

• Determine a budget and how much house is affordable. 
• Don’t forget about closing costs.
• Consider the anticipated amount of time spent living in your new home.
• Factor in potential repairs and renovations the home will need.

FAQs: Making A Down Payment On A House

If you still have questions about down payments, read on to learn more.

What’s the minimum for a down payment for a house?

It can be as low as zero, but the real answer depends on your loan type, the amount of money you have saved up, your financial goals, your income, your credit score and other considerations. For example, a VA loan might require nothing for a down payment, but you might still want to put down 20 percent because you have saved up enough money and you want there to be substantial equity in your home upfront.

Is down payment assistance available?

Yes! Investigate down payment assistance options with your lender. A number of different assistance programs might be available depending on your income, the type of loan, the location of the home and other factors.

Can I buy a house without a down payment?

Yes, buying a house with no money down is possible if the loan type and other factors allow it.

Why are down payments required by mortgage lenders?

Down payment benefits both lenders and borrowers, as they reduce the risk associated with buying a home. For the lender, a down payment means they are not on the hook for the entire value of the home if you default on your mortgage. For you, a down payment ensures you will have equity in your home and increases your chances of being able to afford your monthly mortgage payments.

How can I calculate my down payment?

Here’s the equation to use: Purchase Price x Down Payment Percentage = Down Payment

For example, if the home you're buying costs $300,000 and you want to put 20% down, the equation would be $300,000 x .20 = $60,000.

The Bottom Line

As you can see, there are quite a few factors that will go into the amount you decide to put down on a home. The amount of cash you have to spend, the type of loan that’s best for you, and your future goals are just a few factors to consider. A larger down payment can help you secure a lower interest rate on your mortgage loan, reducing the size of your monthly payments and allowing you to pay less in total interest over the lifespan of your loan. Ready to get started? Begin the online approval process today with our friends at Rocket Mortgage!