How Much Down Payment is Necessary to Obtain Home Financing?

By William J Acres Updated on 8/15/2017

How much money do you need for a down payment on a home?

Most people will say between 10% to 20% down.  However, there are programs which allow you to finance 100% of the home’s value, and other programs which allow you to finance with as little as 3% down.

There is also community down payment assistance programs available in certain areas where the down payment can be a gift or grant, which is forgiven over time.. to other programs where they “Lend” you the required money for the down payment. 

Also, understand that we’re talking about the funds that is used to lower the loan to value (LTV) to the lenders acceptable level. You will also need funds for closing costs. There are ways to get the required funds for closing costs from a variety of sources from your lender to seller contributions, and maybe even your realtor, but we’ll leave this topic for another article down the road. So let me shed some light on exactly how much is required to purchase a new home today.

VA Down Payment

Under VA financing, you can finance up to 100% of the home’s value. VA financing is reserved for military personnel, whether you’re active, discharged, retired, or a surviving spouse, you might be eligible for this 100% financing. 

If you’re not sure if you qualify for VA financing, follow this link to determine If you're eligible or not for a VA guaranteed loan.

USDA Down Payment

USDA offers 100% financing for homes in certain rural areas throughout America. To determine if a property qualifies for USDA financing, you can simply enter the property address at USDA’s website, and it will give you the results.

Home Path Financing

With HomePath financing, you can purchase a home with just 3% down payment, and you will not have to pay mortgage insurance. This program is only available on specific “HomePath Homes” to see a list of qualifying home in your area, click this link.

 

Conventional Financing

Conventional is the most flexible financing option when it comes to down payment.. you have to have better than average credit, but you can purchase a home with as little as 3% down, and if you have 20% or more down payment, you would not be required to pay mortgage insurance. 

Conventional financing is available in just about every home, townhouse, condo, you can find, although special guidelines apply to condo’s and special built/use properties, so check with your mortgage broker to see for sure.

FHA Financing

FHA is the most expensive way to obtain financing, but you can purchase with just 3.5% down.  The credit requirements are must less stringent, and it’s available in just about every home. However, condo’s have to be on FHA approved condo list to qualify.  

With FHA, the interest rate is usually slightly lower than conventional; however, the monthly mortgage insurance for FHA is much higher than conventional.  It’s a whopping $112.50 for every $100,000 financed, and the only way to remove the MI is to pay off your loan or refinance the property into a non-FHA loan.

Choosing the Right Mortgage Down Payment

As you can see, there are many different programs out there that are intended to help borrowers obtain mortgage financing that doesn't require huge sums of cash to qualify. Believe it or not, the biggest reason for loan denial is not insufficient down payment, and it’s not even bad credit, but its monthly income and debt to income ratios. 

There is only one true way to find out if you qualify for a mortgage, and that’s to apply with a mortgage professional. They will be able to look at your complete scenario and can properly guide you to the right loan product and down payment program  

If for any reason you don't qualify, then they will be able to advise you which steps would be necessary to take so you can get accepted in the future.