What You Need to Know About a Home Down Payment

A typical home down payment can range anywhere from 5-20% of the purchasing value of the home. Although, this can definitely vary! If applicants are making use of an FHA loan this can be as low as 3- 3.5%. The minimum down payment for a conventional 30-year mortgage is typically 5%. There is no max for acquiring a mortgage you can put down as much as you like or buy the property in cash. Mortgage insurance protects the lender in case you default on the mortgage and is most often required for anyone putting a down payment of less than 20%. If you do not have 20% for a down payment then mortgage insurance is definitely recommended (but also required) since it allows you to put a smaller down payment to purchase the home.

Larger down payments will make your liability on the mortgage lower in the long term, therefore, you will have a lower monthly payment and pay less in compounding interest over the amortization of the mortgage.

Ideally, the recommended down payment you should aim for is 20%. This will keep your Loan to Value at 80% from the starting point. So when your mortgage is initiated you'll already have a reasonable amount of cushion in regards to your monthly payment/obligation. If you use a more mortgage payment calculator and include taxes and PMI you'll be able to see what your monthly liability will come out to. However, if you're putting down 20% on a mortgage, you'll be able to avoid PMI altogether.

Your first goal should be to make a 20% down payment. Doing so will allow you to avoid having to pay mortgage insurance, although you can still qualify for a mortgage with a lower down payment. The down payment is the only lump sum payment you are required to make. People tend to forget about closing costs, title insurance, Escrow, etc.

Make sure to consider other associated costs. Title insurance, homeowner’s insurance, property taxes (this may be due soon after closing), HOA Fees (if applicable), lawyer’s fees, home appraisal fees, inspection/surveying fees.

When gauging whether you should apply for a mortgage, use the same metrics that lenders use! Make sure your Debt to Income ratio is well within guidelines (the lower the better). Ideally you want your DTI to be as low as possible so that in case of an emergency you have a cushion. Make sure to consider all applicable closing costs!

Tips: Try to have more than the bare minimum required, you always want to set yourself up for success in buying your first home and have a safety net at play.

Don’t rush! Home buying is a complicated process and you should never rush. There will always be opportunities available and the home market can change quite rapidly.