The two dreaded words ― down payment is a nightmare for every person planning to buy a house. Previously, we have talked extensively about how to save for a down payment. Today, we are here to answer the question: How much?
You have probably heard many realtors recommend saving 20% for the down payment. While 20% is a perfectly acceptable amount, it is not necessary. According to the National Association of Realtors, the median down payment in 2021 for buyers was 13% and 7% for first-timers. So, if you have been struggling to save $60,000 for your $300,000 house, we suggest you reevaluate your savings.
Minimum Down Payment Based on Loan Types
0% Down Payment: A loan is given by the US Department of Veterans Affairs, referred to as VA loan, does not require a down payment. This loan is for veteran military members and their surviving spouses. However, buyers need to meet certain requirements, and their income needs to fall within the given limit.
3% Down Payment: Conventional mortgages require 3% down payment. Some are secured, and others unsecured. Since the government does not back this loan, they have a few down payment guidelines that are quite strict.
3.5% Down Payment: An FHA loan that the Federal Housing Administration offers at a 3.5% down payment. However, you need to have a credit score of 580. If your credit score is slightly lower and falls between 500 and 579, you will have to make a 10% down payment.
10% Down Payment: A Jumbo loan is a conforming loan. It requires a higher down payment because there are a few risks involved. The limit can be higher based on the type of lender you choose and your credit score.
Why Make a 20% Down Payment
There are many benefits of making a larger down payment, which include the following:
Better Interest Rate
If you don’t have a “Good” credit score, you can get a better interest rate on your loan by making a bigger down payment. Moreover, when you borrow less, the lender’s risk is low, which works in their favor.
Lower Monthly Mortgage
Since you will be making a huge amount towards your house, your monthly payments will be lower. The interest rate that has to be paid over the loan’s life will also be low.
Lower Upfront Fees
Since the risk associated with the loan will be low, the lender won’t ask you to pay private mortgage insurance.
In conclusion, you don’t necessarily have to make a 20% down payment. If you are a veteran military member, you won’t have to make a down payment at all. If you have a high credit score, you will get better interest rate terms by making a 13% down payment. All in all, the down payment can range between 13% and 20%.
If you are looking for affordable house listings, visit the Megan Dowdy Realty website. Consult with their professional Winter Garden realtor to determine what type of Orlando real estate you would qualify for. For further information, call 407-509-9279.