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How Much Do I Need for a Down Payment To Buy a Home?

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When trying to qualify to purchase a home there are three areas that most borrowers will need to have to do so:

  1. Credit – Every loan program rewards those with higher credit scores offering better rates with lower costs.  Most have a minimum you will need to have in order to even be considered.
  2. Income – Your ability to repay your mortgage is essential to getting approved.  Every loan program requires certain parameters when it comes to your debt to income ratio.  At the end of the day you have to be able to pay the loan back.
  3. Assets – This is where our focus will be today.  Money in the bank is key for most programs, whether it is for your down payment or cash reserves, what’s in your bank account can dictate whether or not you can buy a home.

How much do I need for a down payment? Do I have to have 20% down to buy a home?  What if I don’t have all the down payment money right now?  Can I borrower the down payment money?  Can I get 100% financing?  These are just a few of the most popular questions we field in our office on a daily basis.  With so much info out there, let’s make it easy so you can get to buying that house!

Down Payment Options By Loan Programs

There are so many loan programs out there, but most borrowers will use of the main 4 types:

  1. Conventional Loans:  Fannie Mae and Freddie Mac govern the conventional loan guidelines and they have been making it easier for borrowers with less cash on hand still buy a home no problem. Right now you can buy a home with as little as 3% down using the Home Ready or Home Possible Conventional Loan Programs.  Both programs have income limits that depend on the county you live in.  Here is the link to search the address of the home you are looking to purchase.  Home Ready Look Up Tool   and   Home Possible Look Up Tool    If your income is too high, then you can still put only 5% down to qualify.
  2. FHA Loans:  This is a government guaranteed loan program with easier guidelines that allow lower credit borrowers still qualify to purchase a home.  The FHA minimum down payment is 3.5%.  FHA is a great option for those who have had credit issues in the past or who may have a higher debt to income ratio.
  3. VA Loans:  This program is one that offers 100% financing and a down payment is not required.  Of course you would have to be a veteran or active duty service man or woman to be able to use the VA loan program.
  4. USDA Loans – This program is for homes located in rural areas as defined by the United States Department of Agriculture.  This program also offers 100% financing and does not require a down payment.

What are the benefits of putting 20% Down?

With so many programs offering low down payment options, it seems like gone are the days of 20% down.  We still see a large number of borrowers coming to the table with a 20% down payment.  Cash is still king and it can benefit you in the long run.  You will not have to pay mortgage insurance (except on an FHA Loan), your monthly payment will be smaller and you should be able to negotiate for a better rate or lower costs.  All great benefits for bring cash to the table.

Can I Borrow the Down Payment Money or Get a Gift?

This can be a bit tricky, but there are ways to leverage other assets to get your down payment money.

The best option is to get a Gift from a relative that DOES NOT have to be repaid.  You can be gifted the full down payment amount from this person.  Contact us Today to get more info on who or what can gift you money for your down payment.

If you have other assets that can be turned into liquid cash, then you may have a great source for a down payment.  You can cash out of investment homes you own as long as any new loans or payments are added to your debt to income ratio.  You can borrow against your 401K or retirement account to be used as your down payment.  If the money if taken as a 401K loan, you will NOT have to include the new payment in your debt to income ratio if there is enough money left in the account to cover what you borrowed.

Contact us Today for more information on what assets can be used as your down payment.

 

Eric Weishaar

President | NMLS# 207659

Categories: The Owl Blog