March 15, 2021
8 MINUTE READ
A down payment on a property is a vital first step toward owning your own home. However, people who are new to the real estate market can feel confused and overwhelmed, unsure of knowing where to start.
Purchasing a property doesn’t have to be complicated or scary. As long as you learn the basics, like where you can get financing for a mortgage and what impact this will have on your credit score, you’re off to a great start.
When searching for a property, you’ll probably have questions like, ‘how much is a down payment on a house ?’ or, ‘where can I find a first-time buyer loan with zero down?’
We’ll answer these questions shortly.
Finding the cash for a down payment is a potentially massive hurdle for anyone dreaming of owning their first home.
Typically, financial experts recommend providing a 20% down payment to avoid hefty monthly private mortgage insurance fees. That said, saving 20% of the cost of a home can take some people years.
However, many people can purchase a property without a first time home buyer down payment!
We’ll explain this in more detail later, but first, let’s talk about down payments.
A down payment can be defined as: ‘the money a home buyer gives to a property seller to secure a home purchase deal.’
Typically, the remaining balance owed on a property purchase is cleared through a mortgage loan obtained by the buyer. Therefore, a lender considers a down payment proof that you’re committed and invested in the home purchase. A down payment can be seen as a guarantee that you’ll honor all mortgage payments.
For homeowners that have put down over 20% of equity as a down-payment, you automatically don’t have to pay for PMI, or private mortgage insurance.
A home down payment is calculated as a percentage of a total property purchase. Let’s imagine you’re buying a home for $150,000 and you pay a deposit of $30,000; your down payment equates to 20% of the entire home purchase.
The amount you pay as a down payment directly impacts the total cost of your home. For example, interest rates in your mortgage are primarily calculated based upon your down payment sum. The bigger your down payment, the lower your interest rates will be, and the less you’ll pay in total for your property.
By now, you’re probably wondering, ‘ how much is the downpayment for a house that I can call my forever home?’
Let’s take a look:
The standard recommended industry rate for down payments on first homes is 20% of the total property value. However, thousands of home buyers are eligible to purchase a home using a U.S Federal Housing Administration (FHA) loan, with just a 3.5% down payment.
These particular loans last for 30 years and are typically capped at $417,000 mortgage loans. That said, there are some exceptions to this rule depending on the property’s location that’s for sale.
For instance, higher-income areas such as New York City and San Francisco could see much higher FHA loan down payment offerings. Many conventional bank loans can be approved with down payments as low as 5% for loans leading up to $417,000. However, if the property is more expensive than $417,000, most lenders ask for an additional 5% towards the down payment.
In addition, With Fannie Mae’s HomeReady and Freddie Mac’s Home Possible, a 3% down payment — or what lenders refer to as 97% loan-to-value , or LTV — is available on conventional loans.
The amount of money required for your down payment is calculated using several variables. This includes your age, income, marital status, health, credit health, financial situation, and how big a deposit you will put towards the home purchase.
In general, Americans place neither 3.4% nor 20% as a deposit on a home purchase. In 2016, the National Association of Realtors discovered that the average down payment on a property was 11 percent.
Additionally, home buyers under 35, who typically earn less than people in their 40s and 50s, paid deposits of 8% on average for their first homes.
Your down payment amount should depend on how much you can afford to pay in monthly mortgage costs and interest payments. As mentioned above, the more that you can save towards a down payment, the better. If you spend a significant sum towards your first home deposit, you’ll have low mortgage payments and own your property outright quicker.
We recommend using a mortgage loan calculator app to work out exactly how much you require for your down payment.
Before you calculate how much a down payment is on a house , it helps to know what kind of mortgages are available:
Standard 30-Year Fixed Mortgage
Conventional mortgages, such as a 30-year fixed-rate mortgage, often require a minimum of 3% as a down payment. Therefore, if you’re purchasing a $300,000 home, you’ll need at least $15,000 to secure a loan.
If you want a government-backed FHA mortgage, you’ll need 3.5% of the total property value as a minimum down payment. This means that for a $100,000 property, you’ll need to provide $3,500 to get a mortgage loan.
Veteran’s Affairs (VA) Loans
The U.S. Department of Veteran’s Affairs loans give veterans, and U.S military members home loans with no money down mortgage approvals. The U.S Department of Agriculture (USDA) also offers a no down payment home loan guarantee for some rural regions.
Wondering how to buy a house with no money? While you do need to have some liquidity when purchasing a home, there are ways to buy a house without a down payment.
No down payment home loans are the best way to purchase a property without providing a deposit.
But, how do you go about securing a no money down home loan?
As mentioned above, two types of government-sponsored loans can help certain people purchase a home with zero down payment: VA loans and USDA loans. Both loans have specific criteria that you must meet to be eligible for their zero-down mortgage offers.
USDA loans provide 100% mortgage financing. The program is commonly called a Rural Housing loan; however, it’s also available for buyers in suburban neighborhoods. The USDA’s goal is to help “low-to-moderate income homebuyers,” wherever they may be.
We’ve included more information about VA and USDA loans below!
There are two no money down mortgage options available in the U.S.:
Using either of these options, you can secure a property with no down payment as a first time home buyer.
The United States Department of Agriculture finances USDA loans. The government provides these loans to encourage development in both suburban and rural areas. The primary purpose of USDA loans is to encourage people to live in rural areas.
If eligible, you can get a USDA loan with a $0 down payment, and these loans have lower fees than other types of mortgages.
You and your home need to meet specific criteria to be eligible for a USDA loan. Primarily, your home must be located in a suburban or rural area.
The home must be your primary residence, and it has to be a single-family unit.
Additionally, the combined gross income in your household cannot be more than 115% of the county’s median income in which the property is located. Your debt-to-income ratio must be 45% or less, and you are required to have a FICO Score of at least 640.
As long as you meet these requirements, you can secure a USDA no money down home loan.
Veteran Affairs Loans
If you’re a veteran, a member of the National Guard, the spouse of a deceased veteran, or an active-duty service member, you can qualify for a VA loan. VA loans are supported by the Department of Veterans Affairs and provide a lucrative option for no down payment mortgages.
VA loans allow you to pay a one-off VA funding fee of 2.15% of the loan value in place of mortgage insurance.
To be eligible for a VA loan, you must meet the criteria below:
On top of service requirements, you must have a credit score of at least 640 to acquire a VA loan.
If you’re buying a new home, aren’t eligible for a no money down home loan, or are trying to gather a deposit for your first property, we can get you pre-approved and funded for a super-fast loan.
We’re here to make home buying and selling simple, affordable, and stress-free. Start your online loan application and lock in low mortgage rates in minutes, helping you to save on monthly payments and sourcing cash to help remodel your home or clear high-interest debt.