• David Cade

Down Payments Depend on Your Mortgage Type


A question from home buyers, particularly first-timers, is: “How much do I have to put down to buy a house?” The answer is: It depends. The most important of those factors will be your credit, followed by income.


Conventional loans

These mortgages are loans obtained through Fannie Mae or Freddie Mac. If you have really good credit, you may be looking at a minimum down payment of 3%.


This is definitely something that first-time home buyers should be looking into when they start the financing process. With a down payment this low, you will require mortgage insurance, which, when certain conditions are met sometime in the future, can be removed.


Also, ask your mortgage professional about what is called the HomeReady mortgage program, obtained through Fannie Mae. This program caters to low-to-moderate-income borrowers and those purchasing in lower-income areas.


FHA loans

The minimum down payment with FHA programs is 3.5%. This program is ideal for borrowers whose credit scores may be on the low side.


While FHA is good for people who may be unable to qualify for conventional financing through Fannie Mae or Freddie Mac, the difference is that these loans require mortgage insurance. Unlike in conventional mortgages, the mortgage insurance will be in place for the life of the loan.


Keep in mind that, in addition to the down payment on both of the loan types listed above, you can expect to have other outlays of cash associated with the purchase, including closing costs and some type of escrow account. You will still be able to get seller credits to help you with these other outlays, but note: seller credits can’t be used to help you with a down payment.


USDA loans

USDA loans are mortgages backed by the U.S. Department of Agriculture as part of its Rural Development Guaranteed Housing Loan program. Rural loans can be used by first-time home buyers and repeat home buyers alike.


Loan requirements are based on the buyer and the property. The home must be in an eligible rural area. Financing with no down payment, reduced mortgage insurance, and below-market mortgage rates.


VA loans

The Department of Veterans Affairs (VA) offers veterans, active-duty military, reservists, and their family members no-down payment mortgages guaranteed by the government. There is no down payment requirement, flexible guidelines, no private mortgage insurance (PMI), and an easy qualification process with these mortgages.


You must also have suitable credit, sufficient income, and a valid Certificate Of Eligibility (COE). The home must be used for your own personal occupancy. VA rules limit the amount you can be charged for closing costs.

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