How much down payment do I need to buy a house?

So, you have decided to buy a house, where do you start? One of the first things to consider is how much money do you need for a down payment? Typically, the minimum is 3.5%, although there are some first time home buyer programs that only require 3%.

Now, let’s talk about down payments. An FHA loan requires 3.5% down and you will be paying private mortgage insurance, monthly, for the life of the loan. For a conventional loan, minimum is usually 5% down, but if you put 20% down, you will not be making the monthly private mortgage insurance payments. Again, there are some 3% loan down payments. 20% down is definitely a large chunk of change, that many of us do not have, so let’s explore some other down payment options.

Ask yourself,” how can I get creative with coming up with a down payment?” Besides the obvious of spending less and saving more, there are a few other down payment options to consider.

A family member may “gift” you funds for a down payment. This will require full documentation from the family member to the lender. The documentation will show the donor has the funds to provide this gift.

Another option is state down payment assistance programs. Your lender will be able to give you information about these programs, if they are available. Often these programs are based on a specific location, price and income limits may apply.

Retirement accounts can be a means for a down payment. Make sure you check with a financial advisor regarding your account. The advisor will be able to “break down” the terms of your account. For example, will you pay taxes or a penalty for your withdrawal? There are rules for the different retirement accounts.

Always remember, the lower the down payment is, the loan will usually have a higher interest rate. It may take a few of the various down payment options to obtain your down payment. Allow some extra funds for homeownership expenses, you never know what you’ll need it for. Your trusted lender can explain the different programs and options available for you. If you don’t have a trusted lender, your real estate agent can recommend one.