How Much of a Down Payment Do I Need for a House?

Reader Question: “My wife and I are saving up to buy a home early next year. I’ve heard a lot of conflicting information about the size of the down payment we need to buy a house. As first-time home buyers, how much of a down payment do we need to get a mortgage loan?”

FHA vs Conventional Mortgage Loan

It depends on the type of mortgage program you’re using, among other things. For example, if you use an FHA loan to buy a house, you could put as little as 3.5% down on the loan. That’s about the smallest down payment you can make these days, and you will need a credit score of 580 or higher in order to qualify for it. If your credit score is below 580, you would have to put down at least 10% for an FHA loan.

If you’re going to use a conventional mortgage loan (one that is not insured by the government), you will probably have to make a down payment of at least 5%. You can put down as much money as you want to, and you’ll probably get better loan terms with a larger down payment. If I made a down payment of 20%, I would probably qualify for lower interest rate than somebody with a down payment of 5% — with all other things being equal.

How a Bigger Down Payment Helps You

With the way the lending industry has tightened up lately, you would be wise to try and save up for a down payment of 10% or more. This would open up more loan options for you. If you only have 5% to put down, it’s going to be hard to find a lender that’s willing to work with you. Not impossible, but harder.

Your asked how much of a down payment you would need to buy a house. But we should also touch on the topic of private mortgage insurance, or PMI. It’s entirely relevant to this discussion. If you have a single mortgage loan that accounts for more than 80% of the home’s value, you will have to pay mortgage insurance on the loan. This is an added cost that will increase the size of your monthly payment. This can happen if you make a down payment below 20%.

You can avoid PMI by making sure the loan-to-value ratio is 80% or below. You can accomplish this even if you only have a down payment of 10% by using what’s referred to as a piggyback loan. This is where you get a first mortgage for 80%, a second loan for 10%, and then pay the remaining amount with your down payment. The example I just gave you is referred to as an 80-10-10 mortgage loan. And, because neither of the loans accounts for more than 80% of the home value, you would avoid having to pay for private mortgage insurance.

Getting Pre-approved for a Loan

Please note that this article is general in nature. How much you need for a down payment will depend on the type of mortgage loan you are using, your credit and income situation, and other factors. The only person who can give you a definitive answer on this subject is the actual lender. This is why we recommend getting pre-approved for a home loan. It’s an easy way to find out how much of a down payment you will need, and also how much the bank is willing to lend you.

This article answers the question: How much of a down payment do I need to buy a house these days? If you have additional questions about the home buying process, you can use the search tool located at the top of this website. You can also post your questions to our real estate forum, to get a direct response from the publishers of this website.