Mortgage Blog

Do I Need a Down Payment?

Mortgage Basics

The amount of your downpayment can depend on the type of loan you are applying for. It can be different for government loans compared to conventional loans. We've listed out how each type of loan requires a different amount or type of downpayment.

FHA Loan - One of the most popular alternatives is an FHA loan; they are a great way to get your foot in the door with a low down payment, as the minimum down payment requirement is 3.5 percent of the purchase price. However, FHA loans have a cap on the value of the home, which is set county by county. Furthermore, FHA loans require extra fees like upfront & monthly Mortgage Insurance.

VA Loan - VA home loans are available to qualified military personnel exclusively. Loans are available for up to 100% of a home’s purchase price, and also can have no mortgage insurance requirements. Furthermore, because mortgage rates for VA loans are often low as compared to comparable conventional financing, VA loans are a viable choice for military buyers without a down payment.

USDA Home Loans - USDA mortgages offer 100% financing with a zero down payment option. However, to qualify, the subject property must be within an approved USDA census tract, which may include U.S. suburbs and exurbs, and the buyer must earn an income, which does not exceed local norms. USDA charges an upfront fee, which can be financed into the loan, and it has a minimal monthly mortgage insurance premium. For eligible USDA homebuyers the mortgage rates tend to be very similar to FHA or VA loans.

Conventional Loans - Conventional loans have offered flexible down payment plans in the past but the push for the future is to increase the down payment minimums. The typical down payment requirement for a conventional loan is 5%. There are also 3% down payment options however, you tend pay a higher interest rate because of the higher risk. Both of these types of loans involve an either upfront of monthly Private Mortgage Insurance. Conventional wisdom says you should put down as much as you feel comfortable putting down to buy your next home. Typically speaking more is definitely better than less. 

Closing Costs - While closing costs and down payments are unrelated, together they affect the amount of cash needed to complete a home purchase. When refinancing a mortgage loan, homeowners can usually include closing costs in the new mortgage loan amount, which can be quite convenient. However, when you’re purchasing a home, maybe trying to get the sellers to pay the closing costs, and if that doesn’t happen the closing costs are an addition to the required down payment.

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