How Much Money Do I Need to Put Down on a Mortgage?

Understanding Down Payments HomeOwnership Mortgage PartOf WhentoBuyaHomeBasedonMortgageRates ExploreTheGuide Overview HowMortgagesWork Overview Overview ShoppingforMortgageRates Pre-approvalsYouNeed MistakestoAvoid LockingIntheRate RatesforDifferentLoanTypes Overview PointsandYourRate HowMuchDoINeedtoPutDownonaMortgage? UnderstandingDifferentRates Fixedvs.AdjustableRate WhenAdjustableRateRises CommercialRealEstateLoans SavingonFees Overview ClosingCosts Avoiding"Junk"Fees NegotiatingClosingCosts LoweringRefinanceClosingCosts Lendervs.Broker Overview TypesofLenders ApplyingtoLenders:HowMany? BrokerAdvantagesandDisadvantages HowLoanOffersMakeMoney LenderOptions Overview BestMortgageLenders QuickenLoans LendingTree TableofContents Expand UnderstandingDownPayments HowMuchHouseCanYouAfford? YourLoan-to-ValueRatio DownPaymentImpactsYourOffers BenefitsofLargerDownPayment LowDownPaymentLoanPrograms Conventionalloans Government-InsuredLoans DownPaymentAssistancePrograms 4WaystoSaveforaDownPayment ExampleofaDownPayment DoINeedToPut20%DownonaHouse? WhatIstheMinimumDownPaymentonaHouse? IsItBetterToPutaLargeDownPaymentonaHouse? HowMuchMoneyDoINeedToBuyaHousefortheFirstTime? TheBottomLine Whenyoubuyahome,oneofthebiggestup-frontexpensesisthedownpayment.Nottobeconfusedwithclosingcosts,thedownpaymentistheportionofthepurchasepricethatyoupayupfrontatclosing.Generally,ifyouputlessmoneydownonahomeatclosing,you’llpaymoreinfeesandinterestovertheloan’slifetime(andviceversa). KeyTakeaways Thedownpaymentyoumakeonyourhomeimpactswhatkindofmortgageyouqualifyfor,howmuchmoneyalenderwillgiveyou,andtheloan'stermsandconditions.Butthesizeofyourdownpaymentalsoimpactsyourlifestyleandlong-termfinancialplanninggoals,asitdetermines yourmonthlymortgagepaymentsandhowmuchmoneyyou'llhaveforotherexpenses.Ifyou'veonlyeverrented,keepinmindthatyourmonthlyexpensesasanownerincludemorethanjustthemortgage;therearealsopropertytaxes,maintenance,insurance,andpotentialrepairs.Alargerdownpaymentwillgiveyoualowerloan-to-valueratio,orLTV.Thiskeymeasuremakesyoulessriskytolenders,mayqualifyyouforlowerinterestrates,andmayhelpyouavoidfees,suchasprivatemortgageinsurance.Alargerdownpaymentmaymakeyoumorecompetitiveasabuyerbecauseyou'llbeseenasmorereliable,lesspronetohaggling,orneedingtoaskforsellerstopayclosingcosts. UnderstandingDownPaymentsonHouses Theamountyoudesignateasadownpayment helpsalenderdeterminehowmuchmoneytolendyouandwhichtypeofmortgageisbestforyourneeds.Buthowmuchisjusttherightamountforadownpayment?Payingtoolittlewillcostyouininterestandfeesovertime.Toomuchcoulddepleteyoursavingsornegativelyaffectyourlong-termfinancialhealth. Plus,youstillneedtofactorinclosingcosts,movingexpenses,andothermonthlybills.Ultimately,thesizeofyourdownpaymentdependsonyou:yoursavings,income, and budgetforanewhome. First,youneedtofigureoutyourbudgetandhowitcanimpactyourdownpayment.Investopedia'sfree,onlinemortgagecalculatorhelpsyoucalculateyourmonthlymortgagepaymentsandmaketherightfinancialdecisionswhenbuyingahouse.Oneofthefieldsasksforanestimateddownpaymentamount. Whilea20%downpaymentwasoncethestandard,manyhomebuyersnowpay5%orless. HowMuchHouseCanYouAfford? Whenyouare pre-approvedforamortgage,alenderwilltellyouthemaximumloanamountforwhichyouqualify,basedonresponsesinyourapplication.Yourmortgageapplicationasksaboutyourestimateddownpaymentamount,income,employment,debts,andassets.Alenderalsopullsyourcreditreportandcreditscore.Allofthesefactorsinfluencealender’sdecisionaboutwhethertolendyoumoneyforahomepurchase,howmuchmoney,andunderwhattermsandconditions. Asageneralguideline,manyprospectivehomeownerscanaffordtomortgageapropertythatcostsbetween2and2.5timestheirgrossincome.Forexample,ifyouearn$100,000peryear,youcanaffordahousebetween$200,000and$250,000. Ratherthansimplyborrowingthemaximumloanamountalenderapproves,you’rebetterservedbyevaluatingyourestimatedmonthlymortgagepayment.Say,yougetapprovedfora$300,000loan.Ifyourmonthlymortgagepaymentandothermonthlydebtsexceed43% ofyourgrossmonthlyincomeyoumighthavetroublerepayingyourloaniftimesgettight.Inotherwords,becautiousaboutbuyingmorehousethanyoucanreasonablyafford. Ifyou’vebeenrentingforsometime—oryoualreadyownahomeandarelookingtobuyagain—youlikelyhaveastronghandleonthemonthlymortgagepaymentyoucanafford.Rentersshouldkeepinmindthatowningahomeorcondoincludesadditionalexpensessuchaspropertytaxes,maintenance,insurance,possibleHomeOwnersAssociation(HOA)dues, andunexpectedrepairs. Beyondbuyingahouse,youmayalsowanttocontributetootherfinancialgoalssuchassavingforretirement,startingafamily,shoringupanemergencysavingsfund, andpayingdowndebt.Takingonatoo-highmonthlymortgagepaymentwilleatupcashthatcouldotherwisegotowardsomeoftheseimportantgoals. DownPaymentandYourLoan-to-ValueRatio Yourdownpaymentplaysakeyroleindeterminingyourloan-to-valueratio,orLTV.TocalculatetheLTVratio,theloanamountisdividedbythehome’sfairmarketvalueasdeterminedbyapropertyappraisal. Thelargeryourdownpayment,theloweryourLTV(andviceversa).SincelendersuseLTVtoassessborrowerriskandpricemortgages,alowerLTVmeansyoupaylowerinterestratesonyourmortgage—andmayavoidadditionalcosts. AlowerLTVratiopresentslessrisktolenders.Why?You’restartingoutwithmoreequityinyourhome,whichmeansyouhaveahigherstakeinyourpropertyrelativetotheoutstandingloanbalance.Inshort,lendersassumeyou’llbelesslikelytodefaultonyourmortgage.Ifyoudofallbehindonyourmortgageandalenderhastoforecloseonyourhome,they’remorelikelytoresellitandrecoupmostoftheloanvalueiftheLTVratioislower. Inadditiontoassessingyourrisk,lendersusetheLTVratiotopriceyourmortgage.IfyourLTVratioislower,you’lllikelyreceivealowerinterestrate.ButiftheLTVratioexceeds80%,meaningyou’veputlessthan20% ofthehome’svalueas adownpayment,expecthigherinterestrates.Theseratescoverthelender’sincreasedriskoflendingyoumoney. Also,ifyourLTVratioexceeds80%,you’lllikelypayforprivatemortgageinsurance,(PMI).TheamountofPMIyou’llpaydependsonyourloantype.Forinstance,someloansinsuredbytheFederalHousingAdministrationrequirebothanup-frontmortgageinsurancepremiumthat’spaidatclosing,aswellasanannualmortgageinsurancepremium(MIP)forthelifeoftheloan.WhileFHAloanshavealow,3.5% downpaymentrequirement,thetotalcostofborrowingmoneyascalculatedintheannualpercentageratetendstobemuchhigherfortheseloans. Forloansthatwillacceptdownpaymentsof5%orless,considerFannieMaeandFreddieMac,individuallenderprograms, Government-insuredFHAloans,VAloans,orUSDAloans. HowYourDownPaymentImpactsYourOffers Whenyou’reonthehuntfortherighthome,timeisoftheessence.Homesatentry-levelpricerangestypicallysellquickly,andyouwanttoputyourbestfootforwardwhenmakinganofferbecauseyou’llprobablyhavecompetition.Whenmarketsarecompetitiveandsellersreceivemultipleoffers,theywanttoseebuyers’bestoffers,including asizabledownpayment.Fromaseller’sviewpoint,buyerswhohavemoremoneytoputdownaremoreattractivebecausetheyhavemoreskininthegame. Ahigherdownpaymentcanindicatetoasellerthatyouhaveenoughcashonhandandsolidfinancestogetafinalloanapproval(andgettotheclosingtable)withoutahitch.Also,ahigherdownpaymentcouldbeatoutotheroffersthataskforsellerstopayclosingcostsorofferbelowtheaskingprice.Someonewithasizabledownpaymentisunlikelytorequestsuchassistance,andsellersaremorelikelytoworkwithabuyerwhohasthemoneyandmotivationtoseethepurchasethroughwithminimalhaggling. BenefitsofLargerDownPayment Whilenotalwaysavailableforahomebuyer,makingalargerdownpaymentcanbeasmartstrategytolowerboththemonthlycostofcarryingthehome,aswellastheoverallcostofinterestpaidoverthelifetimeoftheloan.ThisalsomeansthatyouwillhavelargeramountofhomeequityinyourhousetodrawonifyouneedtoaccessitthroughahomeequityloanorHELOC.Thiscanbehelpfulifyouneedtoremodelorjustneedthecashforalargeexpenseoremergency. Inadditiontothelowerfinancialcostsofowningyourhome,alargerdownpaymentcanalsoqualifyyouforalowerinterestrateonyourmortgage,especiallyifyoucangettheloanamountdownbelowthejumboloanthreshold.Youalsowon'tneedtopayforPMImortgageinsuranceandyoumayhaveanadvantageoverotherpotentialbuyersinthecaseofmultiplebidsbymakingamoreattractiveoffer. Whiletherearebenefitstoalargerdownpayment,onemustbalancetheprosandthecons.Withalargeramountdown,thatmoneyisnolongeravailabletomakeotherpurchasesorinvestments,sothereisanopportunitycost.Thatmoneywillalsobetiedupinyourhome,makingitlessliquidthanascash. LowDownPaymentLoanPrograms Theoldstandardusedtobethat homebuyersneeded20%downtobuyahome.Timeshavechanged.Manyhomebuyers,especiallyfirst-timebuyers,simplydon’thavea20%downpaymentsaved.ThisisbecomingincreasinglythecaseashomepricessoarinmanyU.S.housingmarkets.Forexample,themedianexisting-homepriceinNovember2020was$310,800,a14.6% increasefrom$271,300inNovember2019,accordingtothelatestdatafromtheNationalAssociationofRealtors. Infact,homebuyerswhofinancedtheirhomeputdownanaverageof12% ofthepurchaseprice,accordingtoNAR’s2020ProfileofHomeBuyersandSellers.First-timebuyersusingfinancingtypicallyputdownjust7%ofthepurchaseprice,thesurveyfound.  Forthosewhocan’tafforda20%downpayment,severaltypesofmortgagesofferalowdownpaymentoption. Conventionalloans FannieMaeandFreddieMacprograms(3% down) FannieMaeandFreddieMac,government-sponsoredenterprisesthatbuyandsellmostU.S.mortgages,requireonly3% downforborrowerswithstrongcredit.Bothprogramswillconsidersomeborrowerswithnocreditscorebybuildinganon-traditionalcreditreport—aslongasthoseborrowersmeetcertaindebt-to-incomeandloan-to-valueratioguidelines inadditiontootherrequirements. FannieMae’sHomeReadymortgageprogramallowsa97% LTVratioforborrowerswithaminimumcreditscoreof620.FreddieMac’sHomePossibleAdvantagemortgagealsooffersa97% LTVratioforborrowersbutrequiresaminimumcreditscoreof660toqualify. Individuallenderprograms(1%to3% down) ManylendersofferFannieMaeandFreddieMac’sprogramsandaddtheirowndownpaymentassistancebenefitforaconventionalloan.Forexample,GuildMortgagerequires1% downandprovidesa2% giftforborrowerswithqualifyinglowincomesandaminimumcreditscoreof680.WellsFargo’syourFirstMortgage®allowsfor3% downwithnoareamedianincomerequirements. Theseareonlytwoofmanyoptions.Ifyouneedaloanwithalowdownpaymentrequirement,asklendersabouttheirofferingstohelpyounarrowdownyourchoices. Jumboloans(10%to20%down) Jumboloansarethemostcommontypeofnon-conformingconventionalloanavailabletohomebuyers.Lendershavevaryingqualifyingguidelinesforjumboloans,whichexceedanarea’sconformingloanlimitsetbythefederalgovernment. Becausejumboborrowerspresentmoreriskforalender,expecttoput10%to20% ofthepurchasepricedown.Borrowerswithcreditscoresof700orhighertendtogetthebestpricing,butsomelenderswillworkwithjumboborrowerswithaminimumscoreof660.Lendersmightrequireyoutohave10% ofthehome’spurchasepriceincashorotherassetsincaseyourunintoissuesrepayingyourmortgage. Government-InsuredLoans FHAloans(3.5%down) Youcanputaslittleas3.5% downonFHAloansifyouhaveaminimumcreditscoreof580.FHA-approvedlendersalsowillconsiderborrowerswithnon-traditionalcredithistoriesaslongasyou’vehadon-timerentpaymentsinthepast12months,nomorethanone30-daylatepaymenttoothercreditors,andyouhaven’thadanycollectionactions(medicalbillsbeingtheexception)filedinthelast12months.  Also,thepropertyyou’rebuyingmustcomplywiththepropertystandardssetbytheU.S.DepartmentofHousingandUrbanDevelopmentforsingle-familyandcondohomes andbewithinFHAloanlimits.AnotherbenefitofFHAloansisthatyoucanuseafinancialgiftfromarelativeorfriendtowardallorpartofyourdownpaymentifyouprovidedocumentationstatingit’sagiftandnotathird-partyloan. VAloans(0%down) U.S.militaryservicepersonnel,veterans,andtheirfamiliescanqualifyforzero-downloansbackedbytheU.S.DepartmentofVeteranAffairs.Otherbenefitsincludeacaponclosingcosts(whichmaybepaidbytheseller),nobrokerfees, andnoMIP.VAloansdorequirea“fundingfee,”apercentageoftheloanamountthathelpsoffsetthecosttotaxpayers.Thefundingfeevariesdependingonyourmilitaryservicecategoryandloanamount. USDAloans(0%down) TheU.S.DepartmentofAgricultureguaranteesloanstohelpmakehomeownershippossibleforlow-incomebuyersinruralareasnationwide.Theseloansrequirenomoneydownforqualifiedborrowers—aslongaspropertiesmeettheUSDA’seligibilityrules. DownPaymentAssistancePrograms Specialprogramsinyourstateorlocalhousingauthorityofferhelptofirst-timebuyers.Manyoftheseprogramsareavailablebasedonbuyers’incomeorfinancialneed.Theseprograms,whichusuallyofferassistanceintheformofdownpaymentgrants,canalsohelpwithclosingcosts.TheU.S.DepartmentofHousingandUrbanDevelopmentlistsfirst-timehomebuyerprogramsbystate.Selectyourstatethen“HomeownershipAssistance”tofindtheprogramnearestyou. 4WaystoSaveMoreforaDownPayment Itcanbeachallengetosavemoneyforadownpaymentonahome.Herearesomequicktipstogetyouthere: Startearlywithanautomatedplan.Inadditiontoaregularsavingsoremergencyfundaccount,openadedicatedsavingsaccountforyourdownpayment.Aftereachpayperiodorwindfall(likeafinancialgift,taxrefund,bonus,orinheritance),depositmoneyintoyourdownpaymentfundandwatchthebalancegrowovertime.Contributingtothatfundasearlyandoftenaspossiblewillhelpyoustayontrack.Slashyourspending.Ifhomeownershipisimportanttoyou,cutoutorreduceunnecessaryexpenses suchascableandTVservice,eatingout,vacations,orothernon-essentials.Byspendingless,you’llsavemoretowardyourdownpayment andhaveextramoneytopaydownotherdebts.Makingsacrificesnowcangoalongwaytowardachievingyourhomeownershipgoals.Payoffhigh-interestdebts.Creditcardsorloanswithhigh-interestratescanhurtyourcreditandarecostlyinthelongrun.Focusonpayingdowntheseaccountsfirst,andyou’llseeasnowballeffectonreducingyourdebt.Oncetheseaccountsarepaidoff,youcanthenapplythemonthlypaymentamountstowardyourdownpaymentsavings.However,don’tclosetheseaccounts;thatcanloweryourcreditscorebecauseyou’relosinganopenlineofcreditandanaccounthistory.Instead,usethemminimally(buygasoranoccasionaldinneratarestaurant) andpaythebalancesoffimmediately.Thisbehaviorhelpsbolsteryourcreditpaymenthistoryandshowsresponsibleusagetocreditbureausandlenders.Getasecondjob.Manyfirst-timebuyersfindtheycansavemuchfasteriftheyincreasetheirincome.Findingsidegigstodofromhomeorworkingaseasonalretailjobcanhelpincreaseyourdownpaymentsavings.Evenifyouworktemporarilyforsixmonthsorayearpriortobuyingahome,theaddedincomecouldbetheboostyouneedforadecentdownpayment. ExampleofaDownPayment Themechanicsbehindmakingadownpaymentarefairlystraightforward.Imagineyoufindahouseforsale,andyouhaveanacceptedoffertobuyiffor$500,000witha20%downpayment.Thedownpaymentamountwouldbe$100,000=(500,000x0.20).Thissumofmoneymustbedepositedinatimelymannerintoanescrowaccountthatwillbehelduntilclosing.Atclosing,itwillbecreditedtowardthefinalamountdue. DoINeedToPut20%DownonaHouse? No.Theoldstandardwas20%downtobuyproperty,butthemajorityoffirst-timehomebuyersput5%orlessdownonahome,accordingtoaNationalAssociationofRealtorssurvey. WhatIstheMinimumDownPaymentonaHouse? Thereisnolaworruleforauniversalminimumdownpayment,butthemoreyoupayupfront,theloweryourmonthlymortgagepayments,thelowertheinterestrateyouwillqualifyfor,andthelesslikelyyouwillbetohavetopaymortgageinsuranceorotherfees.Generally,however,3%-5%wouldbetheabsoluteminimum,andonlyforcertainborrowers. IsItBetterToPutaLargeDownPaymentonaHouse? Ifyoucanaffordtoputasizeabledownpaymentonaproperty,thebenefitsincludemoreoptionsforamortgage,lowerinterestrates,morenegotiatingpowerwithaseller,andtheavoidanceofhavingtopaymortgageinsuranceandcertainotherfees.Butifputtingalargedownpaymentwouldresultinyounothavingenoughmoneyforothermonthlyexpensesoryourlong-termsavingsgoals,asmallerdownpaymentmaymakemoresense. HowMuchMoneyDoINeedToBuyaHousefortheFirstTime? AsofSeptember2021,themedianhomepriceintheU.S.isaround$370,000.Assuminga20%downpayment,youwouldneed$74,000foradownpayment,plusseveralthousandmoreforclosingcostsandfeestoyourlender,realtor,lawyer,andtitlecompany.Still,nosetamountisrequiredandhomepricesvarystate-to-stateandcity-to-city.It'salldependentonwhatyou'relookingforintermsofsizeandtypeofproperty,neighborhood,amenities,andanyotherdetailsspecifictoyoursituation. TheBottomLine It’snotimpossibletobuyahomeifyoudon’thavemuchcashsavedupforadownpayment.Shoppingaroundfortherightlenderandloantypeisacriticalstep.Withalowerdownpayment,expecttopayhigherloanfeesandinterestrates,aswellasPMI.Also,don’tforgettotapintodownpaymentassistanceprogramsofferedbyyourstateorcity.Ifsomeoneoffersafinancialgifttowardyourdownpayment,makesuretheyunderstanditcannotbealoan. There’snoshortcuttosavingforadownpayment:Ittakestime,discipline,andeffort.Buttheresult—purchasingahomeofyourown—canberewarding,bothfinanciallyandpersonally. ArticleSources Investopediarequireswriterstouseprimarysourcestosupporttheirwork.Theseincludewhitepapers,governmentdata,originalreporting,andinterviewswithindustryexperts.Wealsoreferenceoriginalresearchfromotherreputablepublisherswhereappropriate.Youcanlearnmoreaboutthestandardswefollowinproducingaccurate,unbiasedcontentinour editorialpolicy. NationalAssociationofRealtors."Existing-HomeSalesDecrease2.5%inNovember."AccessedJanuary19,2021. NationalAssociationofRealtors."2020ProfileofHomeBuyersandSellers."AccessedJanuary19,2021. St.LouisFed."MedianSalesPricesforHomesSoldintheU.S."AccessedSeptember21,2021. PartOf WhentoBuyaHomeBasedonMortgageRatesGuide IsHousePriceorInterestRateMoreImportant? 1of23 WhatIsaMortgage? 2of23 ShoppingforMortgageRates 3of23 5ThingsYouNeedtoBePre-approvedforaMortgage 4of23 11MistakesFirst-TimeHomebuyersShouldAvoid 5of23 GotaGoodMortgageRate?LockItIn! 6of23 MortgagePoints:What'sthePoint? 7of23 HowMuchMoneyDoINeedtoPutDownonaMortgage? 8of23 UnderstandingDifferentMortgageRates 9of23 Fixed-Ratevs.Adjustable-RateMortgages:What'stheDifference? 10of23 Adjustable-RateMortgage:WhatHappensWhenInterestRatesGoUp 11of23 CommercialRealEstateLoan 12of23 UnderstandingMortgageClosingCosts 13of23 WatchOutfor‘Junk’MortgageFees 14of23 HowtoNegotiateYourClosingCosts 15of23 HowtoLowerRefinanceClosingCosts 16of23 WhatAretheMainTypesofMortgageLenders? 17of23 ApplyingtoMortgageLenders:HowManyAreNecessary? 18of23 MortgageBrokers:AdvantagesandDisadvantages 19of23 DealingWithMortgageLoanOfficersandBrokers 20of23 BestMortgageLendersofDecember2021 21of23 QuickenLoansVs.OtherMortgageSources 22of23 HowaLendingTreeMortgageWorks 23of23 RelatedArticles RefinancingAHome RefinancingaMortgagewithBadCredit Mortgage TheDifferenceBetweenFHALoansandConventionalLoans Mortgage InsuringFederalHousingAdministrationMortgages Mortgage 5ThingsYouNeedtoBePre-approvedforaMortgage Mortgage TheBestJumboMortgageRatesfor2021 Mortgage FannieMae:Loans,HomePath,andAllYouShouldKnow PartnerLinks RelatedTerms FederalHousingAdministration(FHA)Loan AFederalHousingAdministration(FHA)loanisamortgageinsuredbytheFHAandissuedbyanapprovedlender. more HomeReadyMortgageDefinition HomeReadymortgagesareaFNMAprogramforcreditworthylow-incomeborrowers,withalowdownpaymentof3%. more MortgageApplication Amortgageapplicationissubmittedtoalenderwhenyouapplyforaloanandincludesinformationthatdetermineswhethertheloanwillbeapproved. more IsYourMortgageaConformingLoan? AconformingloanisahomemortgagewithunderlyingtermsandconditionsthatmeetthefundingcriteriaofFannieMaeandFreddieMac. more UnderstandingDownPayments Adownpaymentisasumofmoneythebuyerpaysattheoutsetofalargetransaction,suchasforahomeorcar,oftenbeforefinancingtherest. more WhatIstheFederalHousingAdministration(FHA)? TheFederalHousingAdministration(FHA)providesmortgageinsurancetoFHA-approvedlenders.Ifaborrowerdefaults,thentheFHApaysthelender. more