Down Payment Requirements
29 Jan

Down Payment Requirements

What Is A Down Payment?

After you have gotten past the point of knowing your credit score and determining which credit score is needed for specific loan programs, the next logical step is to calculate and find out the Down Payment Requirements. If you are new to purchasing a home we first need to go over what exactly a down payment is and then we can jump into the different Down Payment Requirements. At its simplest form a down payment is a determined amount of cash needed to put toward your purchasing of a new home.
In most instances the amount of the down payment is normally expressed as a percentage of the home purchase price whether it be 3.5%, 5%, 20% etc. With the amount of different loan programs offered you can be in the position to choose the amount of your down payment and fall into the Down Payment Requirements needed for that loan. You can also put more money down than the loan program guidelines call for and we will touch on that topic a little bit later.

What is the right amount?

Even though there are Down Payment Requirements for different loan options there is always a question of what is the right amount to be putting down on a home. In the past many would argue that putting more money down than necessary was the best way to go, but this was also in a time when people bought houses they rarely moved until retirement, if at all. What we are seeing now is a lot of buyers want to put as little money down as possible for a couple reasons:

  1. With savings being at all-time lows and the average amount of debt being held by borrowers, there isn’t much money besides a minimal down payment to be had.
  2. These days younger home owners are not laying roots down like generations before them and do not feel the need to settle down in a neighborhood for 5, 10, 20+ years.
  3. Minimize the risk of losing your money if home values drop again. If you put a large down payment on a home and home prices fall as they have in the past, this is money you will no longer have access to given your reduction in equity.

Even though mortgage lenders see a higher down payment as a show of strength or compensating factor in helping you get an approval, if you can qualify using the minimum mortgage guidelines, this is where Mortgage Scenarios can help you. We will not require you to put down more money than is necessary unless you 100% want to. We pride ourselves on making sure we lend to the minimum guidelines and Down Payment Requirements  so that you can use your hard earned money for repairs, upgrades, or even as an emergency account.

There are certain positives that can be had by having a larger amount of money to put as a down payment and this comes from the amount of house you are able to purchase. If you know you have a budget of what you’d like your mortgage payment to be but have access to a higher down payment, we can illustrate just how much more house you can purchase and stay within your desired payment. For this exercise let’s look at a desired payment of $900 to cover principal and interest on a 30 year fixed-rate mortgage and a 4.5% interest rate.

Sale Price Down Payment Mortgage Payment (P+I)
$160,000 3.5% $782
$175,000 5.0% $842
$190,000 10.0% $866
$220,000 20.0% $892

Down Payment Requirements By Loan Program

Now that we have gone over a lot of the details regarding down payments, it is now time to jump into the Down Payment Requirements by loan program and we are going to start with FHA Loans. FHA Loans have 2 distinct down payment requirements and they are as follows:

  1. FICO Credit Score under 580 = 10% down payment is required
  2. FICO Credit Score 580+ = 3.5% down payment

As we have pointed out in the past the higher FICO credit score definitely has its benefits when dealing with FHA Loans and guidelines and Down Payment Requirements is no different.

When it comes to VA Loans, the Down Payment Requirements are extremely relaxed as most loans can be had with 0% down and 100% financing. If by chance you encounter a lender that does require some sort of down payment you will more than likely need 5% or less to get your VA Loan approved.

If you are obtaining a loan through Fannie Mae or Freddie Mac, known as Conventional Loans, there are also some attractive Down Payment Requirements and for first-time home buyers your down payment could be as low as 3% and for all others you can get a loan for as little as 5% down.

Save Your Money

As you can see, Down Payment Requirements are rather generous across all the different loan programs where you can obtain a home loan with 5% down payment or even less. Before you commit to a loan that doesn’t work for you, please reach out to Mortgage Scenarios today where we can go over different loan options with you and make sure you put as little money down as possible. Please reach out today as we are always here to help you.

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