Just curious to know from those who have experience in homebuying. What is a good percentage to have for a down payment on a house?
I know there are options out there to pay lower down payments for first time home buyers but just curious as to what is a good amount to have in most situations?
20% is ideal because you avoid having to pay a low down payment penalty. That being said, a 10% or 15% downpayment can get you into the game and you can eliminate the penalty as you build equity in the home – when you get to the 20% mark.
I’ve had a lot of experience in buying homes and your question, Moore Income, depends on so many other circumstances. It’s ideal to put as much down as possible sometimes, ie if this might be your last home, or you get a better long term interest rate, or if that is the only way to qualify for a mortgage. However, if you tend to move a lot, or you are a young couple with limited cash reserves, or you do some juggling often with available investment funds, I always believe the least amount down is the way to go. And I’m just touching the tip of the iceberg of when it makes sense or when it doesn’t make sense to tie up cash in property. And last but not least, it depends on mortgage interest rates. I’m old enough (sadly, yikes!) to remember interest rates in the 'teens, so 4 or 5% is LOW; and the higher the rate, the higher down payment relieves the monthly sting. A good financial adviser (not a bank or mortgage company) can really help people make that decision based on their own particular circumstances. I always bought with as little cash needed as possible. One thing I didn’t do was roll closing costs on top of a mortgage. If that is the only way to buy a house, it can be considered, but personally if someone is that strapped for available cash, it might be wiser to try to save those costs before purchasing a home. Again, a good knowledge of how money works best in every circumstance is the key here, I believe.
I live in Pennsylvania. Every Winter I say to myself, “Why am I still here?” I hate being cold for sure. I’ve been looking at Arizona as a possible place to move in the future.
If you are a first time homebuyer, you can get away with as little as 3% down payment if you have a good credit score. Your payments will be higher, but if you can afford it that might be something to consider! Higher down payment is always more desirable, though.
@mintjulep thanks for the helpful reply!
@user_510223957484425246 What kind of a loan would you get those kind of down payments with if it is your first home?
FHA loan I believe
It depends on the type of loan you will be using.
Both FHA and Conventional (on good credit) will loan 97% of purchase price. Sometimes you can get a second loan to pay 2.5% of the purchase price which leaves you with .5% of purchase price to cough up for a down payment. Earnest money can go toward a down payment as well.
If you pay anything less than 20% of the purchase price toward a down payment, you will have to pay a monthly mortgage insurance (MI). This can drop once you have 20% equity of the property.
This will have to be applied for and you will have to pay an appraisal fee.
Some loans will drop the MI once you reach 22% loan to value, so speak with your lender on this.
There are always two sides to a coin.
FHA loans have served the first time Buyers well for years. these loans offer low down payment as the main lure, however they are not cheap and where they start at 97% loan, once one adds up the total costs of getting one it usually ends up as over 5% of the total price with only 3% going towards the actual equity.
A Conventional loan appears at the outset to not be as appealing because it usually requires a minimum of 5% down plus costs. However I prefer to see the money going to equity and then maybe asking the Seller to contribute x amount of dollars towards non-recurring costs. It can be a win-win for everyone and the actual equity in the home is 5% from the outset.
Note! I am not saying that FHA is not a good loan on the contrary the extra cost in getting one can be outweighed by the easier qualifying involved.
Message to all, do your homework and study the costs before making a decision which way to go.
Quick note on MI. (mortgage insurance) was made a requirement by lenders to insure lenders against high risk loans(Low down payment loan losses due to non payment) They used to be removable once the equity in the home exceeded 20% but today things are much different it is very difficult to get lenders to remove them so be aware that it is not a slam dunk!
@roy thanks for your helpful input! You are right about the downside of FHA, I went through the numbers with a banker and I was surprised by how much I would actually be paying for the home when it was paid off!
