How Much is the Down Payment on a Mortgage



The biggest obstacle to buying a house for most homebuyers is the down payment.

Today, there are many types of home loans that offer low and no down payment options.

In this article, we will take a look at the down payment requirements for each type of mortgage program and where your down payment can come from.

Current Mortgage Rates (Novermber 2020)

Loan Term

Interest rate

APR

30-year fixed-rate mortgage

3.15%

3.38%

15-year fixed-rate mortgage

2.91%

3.06%

5/1 adjustable-rate mortgage

3.05%

3.25%

What is a Down Payment?

A mortgage down payment is the amount of money a consumer pays for their share of the purchase price.

The down payment is a percentage of the purchase price of a house. Lenders will only fund a certain percentage of a home’s value to reduce their risk, know as the loan-to-value ratio.

Down Payment Requirements by Loan Type

Down Payment Requirement by Loan Type

FHA Loan

3.5% with 580 score (10% down with 500-579 score)

USDA Loan

No down payment

VA Loan

No down payment

203k Loan

3.5%

Conventional Loan

5% - 20%

Conventional 97 Loan

3%

HomeReady Loan

3%

Home Possible Loan

3%

Where Your down payment can come from:

 

Your Credit Score Affects Your Down Payment

Credit Score

Down Payment

500-579 credit score

10% down payment

580+ credit score

3.5% down payment

FHA home loans offer low down payments and easier guidelines, making them a popular option today.

If you have at least a 580 credit score, you can qualify for an FHA loan with just a 3.5% down payment. However, if your credit score is below 580, you still may qualify, but you’ll need a 10% down payment.

The Down Payment Affects the Mortgage Insurance Rate

One of the benefits of making a large down payment of at least 20% is avoiding paying mortgage insurance.

PMI (private mortgage insurance) is required on all mortgages when putting less than 20% down except for VA loans. PMI is paid monthly; the mortgage insurance fee varies from loan to loan. On most mortgages, the PMI can be removed once the balance on the loan reaches 78% of the appraised value.

FHA Mortgage Insurance Premium Rates

Loan Amount $625,500 or less 

      Down payment

MIP rate

MIP duration

30-year fixed-rate mortgage

<10%

>10%

0.85%

0.80%

     Life of the loan

11 years

15-year fixed-rate mortgage

>10%

             0.45%
 0.70%
     Life of the loan

11 years

$625,500 Loan Amount or higher

Down payment

MIP rate

MIP duration

30-year fixed-rate mortgage

<10%

>10%

1.05%

1.00%

Life of the loan

11 years

15-year fixed-rate mortgage

<10%

>10%

             0.95%

0.70%

Life of the loan

11 years

Down Payment Gifts

The entire or a portion of the down payment funds can be a gift from a friend or family member. FHA and 203k loans allow the entire 3.5% to be a gift. Conventional loans rules on down payment gifts are a little different:

You will need to provide your loan officer with a gift letter for the down payment. This shows that the person gifting the funds does not expect to be repaid.

First-time Home Buyer Down payment Assistance and Grants

There are first-time homebuyer down payment assistance programs and grants you may qualify for.

Go to the HUD website to search for grants in your state.

Why Down Payments are Required

A down payment is required for most mortgage loans. Research shows that a consumer who has more invested in a home is less likely to default on their loan.

Also, when a borrower puts an amount down, the lender does not have to finance the home’s entire purchase price.

If a borrower defaults on the loan, the lender will have an equity position on the property.