Things to Know About House Down Payments

Things to Know About House Down Payments

January 24, 2023

How much is needed for a down payment on a house?

You can purchase a home with 0% down through the U.S. Dept of Veterans Affairs, which means you can purchase a home with no down payment if you are a veteran. There are also some conventional mortgages that allow you to put down as little as 3%.

Is 20% required?

Although not required, a down payment of 20% will often win you favor with lenders and sellers, as you will be easier to qualify for a mortgage. 

What is the minimum required for a conventional loan, FHA loan and other types of loans?

The minimum down payment requirement is 3%. 

Is there a typical down payment?

According to the National Association of Realtors, the typical down payment for first-time buyers has ranged between six to seven percent since 2018, hitting seventeen percent for repeat buyers.

What is PMI and what is its role?

Private mortgage insurance (PMI) is required by lenders when a borrower contributes less than 20% of the purchase price toward a home purchase. Its role is to protect the lender if a borrower is unable to make the required mortgage payments.  

What if you're buying a second home or a rental property, what are the down payment requirements?

In these situations, most lenders will require you to put down at least 10%.  

What is the importance of a down payment?

The down payment is your personal contribution toward the purchase of your home. A larger down payment is looked at favorably by lenders because it exposes them to less risk should you default (stop making payments) on your mortgage. For sellers, if you have a larger down payment, they have more confidence the home won’t fall out of escrow because of a potential buyer being unable to qualify for the mortgage. It is also impacts your monthly payment: if you are able to put more money down up front, your payments will be lower and your mortgage will be less of a strain on your monthly cash flow. This is also another reason lenders might look favorably upon a larger down payment, as fluctuations in your income would be less devastating to your ability to afford the mortgage and your debt service to income ratio is low.  

Should you do the minimum or should you go beyond the minimum -- what are the pros and cons?

Putting down 20% or greater towards your home purchase is of course the ideal circumstance, as you’ll likely receive a better interest rate, have a lower monthly mortgage payment, and have an easier time qualifying for a mortgage. However, if it will take you several years to save that amount of money or make buying a home impossible, I often encourage clients to go forward and put less money down for the sake of getting into a home and beginning to build equity sooner. Although you will have to pay private mortgage insurance (PMI) which is an added cost, you are able to request that it to be removed once you build 20% in equity.



Sathya Chey is a registered representative with, and securities and advisory services are offered through LPL Financial, a registered investment advisor. Member FINRA/SIPC.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

Sathya Chey, Arise Private Wealth, and LPL Financial do not provide real estate-related advice or services.  Please consult your real estate advisor or loan officer regarding your specific situation.