Do I Need a Down Payment to Buy a House?

Buying a house is a dream for many people. There is something about putting down roots and truly being part of a community that makes homeownership a highly sought after goal. If you are one of the people that have the goal of buying a house then you likely have some questions about exactly what it takes to become a homeowner. Here at Century 21 Cornerstone Realtors, one of the questions potential home buyers ask is, ‘Do I need a down payment to buy a house?’ This is a scary question for some buyers because the answer could impact when their able to buy, where they purchase, and what type of house they get. The answer is dependent on a variety of factors so you will have to talk one-on-one with a lender to get exact numbers for your situation. But, there are some general guidelines that can give you an idea about if you need a down payment and what type. You can learn about these guidelines by looking at the different types of home loans. Each type of loan has a different set of requirements that impacts your need for a down payment.

Conventional loan

A conventional loan is a popular choice with homebuyers because you can often get lower fees and interest rates than some of the other loan options. Conventional loans are in the private sector which means that they are not insured by the federal government. The down payment requirement for conventional loans is a low as 3% of the purchase price of the house. So, on a $200,000 house your down payment would have to be at least $6,000. On a conventional loan, if you put down less than a 20% down payment you will be required to pay private mortgage insurance (PMI) premiums each month. These premiums are in place to protect the lender should you default on your loan. Once you build the equity of your home up to 20% of the purchase price or appraised value, then you have the option of getting rid of those PMI premiums.

Federal Housing Administration (FHA) loan

An FHA loan is a type of mortgage that is insured by the federal government. The minimum down payment for an FHA loan is 3.5% of the purchase price of the home. Like conventional loans, you have to pay insurance premiums if you do not put down at least 20%. For FHA loans, these premiums are called mortgage insurance premiums (MIP). The major difference from conventional loans is that you cannot drop the insurance once your home reaches the 20% equity mark. MIP stays with an FHA mortgage for the life of the loan.

Veteran’s Administration (VA) loan

A VA loan is another type of mortgage that is backed by the federal government. It is available to people who have served in some branch of military service-check out the VA website for exact requirements. One of the benefits of this loan that is attractive to many buyers is that there is no minimum down payment requirement. In addition, there are not usually any private mortgage insurance premiums required because the Veteran’s Administration guarantees a portion of the loan.

As you can see, each loan type has its’ own set of guidelines. And, the guidelines can change so make sure you look at the most up-to-date information possible. The good news is that there are options available for home owners who have not put away a large chunk of money for a down payment. If you are unclear about whether you will qualify, get in touch with Century 21 Cornerstone Realtors and we will assist you in getting the information you need.

Jameel Batshon, Broker/Co-Founder of Century 21 Cornerstone Realtors has 15 Years of Real Estate Experience with a background in Lending that started in 2002 at Household Finance Company. Jameel was Born in San Francisco, Ca and moved to the East Bay at a young age. Jameel has been a licensed Realtor since 2004.