How Much Downpayment Do I Need To Buy A Home

Depending on what kind of loan you are using to purchase your home will determine what the minimum investment will be toward the down payment on the home.

Conventional Home Loan – For first time homebuyers purchasing a home with a first mortgage of $417,000 or less, you can get a Conventional home loan for as little as 3% downpayment.

If you are not a first time homebuyer, the minimum down payment for a first mortgage of $417,000 or less is as little as 5% of the purchase price.

If you live in an area of the Country where high balance conventional loan limits are in affect, any conventional loan above $417,000 will require a 10% down payment

FHA Insured Home Loan – All FHA home loans require a minimum down payment of 3.5% of the purchase price.

VA Home Loan Benefit – Generally, VA loans for honorably discharged, or active duty military do not require a down payment up to the eligible guaranty limit. The eligibility amount is determined by the County you are buying in, and your benefit as documented on your Certificate of Eligibility (COE).

If you are trying to purchase home above the 100% guarantee limit, you would be responsible for 25% of the difference between the maximum guarantee, and the purchase price.

USDA Rural Development Loan – USDA loans require no downpayment, and offer 100% financing with loan limits determined by income limits for the County you are purchasing in.

Other Costs:

Closing Costs

The cost of purchasing a home can basically be broken down into two categories, down payment, and closing costs.

Essentially, there is not much difference between down payment and closing costs because it all totals up to the amount you need to come up with to make the initial investment in your new home.

The distinction between a closing cost and the down payment mostly hinges on where you get the money you are using to cover the expense. Depending on the loan program guidelines, and lender guidelines, there may be restrictions of where you get the money.

As a general rule, down payment and closing costs can come from any of these sources. There are certain exceptions depending

Acceptable sources for Down Payment

Money from your personal checking or savings
Money from a retirement account
Money from the sale of personal property
Tax refunds, insurance awards, legal awards, inheritance
Gift funds from a close relative
Homebuyer assistance programs

Acceptable sources for Closing Costs

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Money from your personal checking or savings
Money from a retirement account
Money from the sale of personal property
Tax refunds, insurance awards, legal awards, inheritance
Gift funds from a close relative
Homebuyer assistance programs
Closing cost credit from seller of home
Lender credit based on interest rate
Credit received from real estate agent commission

Common Closing Costs

Closing costs, not including the down payment requirement for the loan program you are using to buy the home, include all other costs required by service providers involved in the purchase transaction.

Closing costs can include, but are not limited to:

Title and Escrow Fees (Attorney fees in states that do not use escrow)
County transfer tax fees
Property taxes
Impound account reserves (taxes and insurance collected to be paid by lender)
Lender fees
Home warranty fees
Inspection fees
Appraisal fee

Some closing costs are traditionally paid for by the seller of the home, like certain transfer taxes, and a 1 year home warranty. Other costs can be paid for through homebuyer assistance programs, or asking the seller for a closing cost credit.

PRO TIP: When asking the seller to give you a closing cost credit, make sure you are not asking the seller to lose money on the sale. For example, if the listing price is $300,000, and that’s a fair price for the home, and you would like to ask the seller to cover $7,500 of closing costs, offer $307,500.

If you offer asking price, AND ask for closing costs, you are not actually offering full price for the home, you are offering $292,500 in this example. That will make your offer less competitive than someone making a full price offer and not asking for a closing cost credit.

As a general rule, closing costs typically add up to 3.5% to 4% of the purchase price. When added to the down payment, you can expect that your upfront investment to purchase your first home will be 7% or higher, depending on the down payment requirement for the loan you are using.

A creative real estate and lender will help you to identify opportunities to help you pay these costs so that you are able to comfortably purchase your home without spending every dollar you have.

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