It’s fun to daydream about buying that perfect home of your own and relaxing in the glow of a fireplace or throwing a dinner party. But to take it from daydream to reality, there are a lot of questions to answer. How much do you need down to buy a house? Is a down payment keeping you from getting into the home of your dreams? How much can I borrow to buy a home?
You may be holding back on searching for a home because you know you don’t have enough to put down on a home, but you might be in a better position than you think. Depending on which kind of mortgages you qualify for, you could get into a home with less money down than you expect.
The qualifications for individual loans vary, so it’s helpful to have an idea of what the landscape is like.
How much do you need down to buy a house? A look at conventional and government-backed mortgages
For your first home purchase, you’ll need to decide between conventional mortgages and government-backed mortgages. There are specific differences between the two, where they can be used, and how they’ll benefit you.
Some people make the mistake of going with a conventional mortgage without realizing that there are benefits to a government-backed mortgage. Let’s look at the differences between the two to identify which will work best for you:
How much do you need down to buy a house with a conventional mortgage?
There are numerous loan programs available, but for the sake of simplicity, we are considering conventional loans to be those that conform to the lending limits set by Fannie Mae and Freddie Mac. Larger loans are possible, but they have some different guidelines to follow.
Traditionally, buyers would need a 20% down payment to qualify for a home loan. There is a mistaken perception that this is still the case. Many conventional loans require less than 20% down payment, and some are as low as 3%.
The 3% down payments allow conventional lenders to compete with Federal Housing Authority (FHA) loan guidelines.
How much do you need down to buy a house with a government-backed mortgage?
FHA – FHA backed loans make it possible for homebuyers to purchase a property when they don’t have a large sum of money for a down payment or have a weaker credit score. FHA loans allow borrowers to utilize this mortgage option with a credit score as low as 580 or with 3.5% down.
Along with the loan, you will have to pay for primary mortgage insurance (PMI), which will increase your monthly payments. So, if you don’t need to use this option due to your credit score or available assets for a down payment, you may be better off going with a traditional mortgage.
USDA – United States Department of Agriculture (USDA) loans help homebuyers in rural areas purchase homes. To qualify for a USDA loan, you have to make sure the area where you want to buy falls within USDA loan guidelines.
You do need to meet specific income requirements to qualify for a USDA loan, but how much do you need down to buy a house with one of these loans? If you qualify, you may not need a down payment at all. Check USDA.gov to see if your location qualifies for USDA loans.
VA – Veterans Administration (VA) loans are available to members of the US military and their families. The biggest advantage of VA loans is that they don’t require down payments or private mortgage insurance. Most loans with low or no down payment will require insurance until a larger portion of the home is in equity.
Most fees and closing costs associated with VA loans can also be rolled into the mortgage to lighten the burden of upfront expenses on the homebuyer.
Each of these government-backed loans will come with a stringent qualifying process. All except for the VA loan also require PMI which will increase your monthly mortgage payments. On any loan, if you own less than 20% equity in the home, you often need PMI. Suffice to say, if you’re looking to buy a home, there are options for you as long as you have some kind of income to pay your mortgage.
What has your experience with getting a mortgage been like?