One of the most common questions asked, is how much of a down payment is needed to purchase a home? The answer as with most anything in life, is it depends.
You can purchase a home with no down payment (VA loans) or with a 3% down payment (some VA loans), or you may need a 15% down payment (investment property home loans).
However, there is no one answer to the question and you certainly don’t need to put down a 20% down payment, in order to purchase a home.
Let’s take a look at the options.
Primary Residence (a home loan for a property you will live):
If you live in a home as your primary residence, the following minimum down payment minimum requirements will apply.
Conventional Loans: A 3% minimum down payment will be required for all first-time homebuyers and potentially for non-homebuyers who fit the Fannie Mae Home Ready standards (see our article on this program). All other home buyers require a 5% minimum down payment.
In addition, gift funds from a family member, are allowable for the entire down payment on this program.
If you make less than a 20% down payment, mortgage insurance will be applicable, but will vary and be based on the exact percentage of down payment. For example, mortgage insurance will be less with a 15% down payment, than a 10% down payment.
FHA Loans: A 3.5% minimum down payment is needed, to use an FHA loan to purchase a primary residence.
You can again use gift funds from a family member for the entire down payment and FHA home loans can only be used to purchase primary residence.
In addition, all FHA loans do have mortgage insurance at their inception, regardless of down payment.
VA Loans: There is no minimum down payment required to purchase a home using a VA loan.
VA loans though, can only be used to purchase a primary residence.
On VA loans there is no monthly mortgage insurance, but for those Veterans and Active Duty Military that do not have a VA disability rating, there is a VA funding fee that needs to be paid at loan closing or rolled into the loan. In the cases where this is applicable, the funding fee is reduced with a 5% down payment and further reduced with a 10% down payment.
In addition, even if you have used your VA loan benefit previously and still own that property, you may be able to purchase a new primary residence still, with little or no down payment.
Jumbo Loans: For a primary residence purchase, you may put as little as a 5% down payment when using a jumbo home loan.
However, Jumbo loan guidelines will be a little more restrictive on Jumbo loans, so the terms of the loan will be better with every 5% additional you make in a down payment in down payment (10%, 15%, 20%, etc.) In other words, the interest rate will certainly be better on a Jumbo loan, if you put down a 20% down payment, as opposed to a 5% down payment. However, there is not mortgage insurance on Jumbo home loans.
Secondary/Vacation Homes (a property you live for at least a portion of the year):
A secondary or vacation home is a property located in a different metropolitan area from your primary home, that you spend some amount of time at, throughout the year. It’s not the home you live in, but it’s also not a purely investment home. An example of this, would be a summer or winter home in a different area than one person’s primary home.
Conventional Loans: A 10% minimum down payment is required when purchasing a secondary or vacation home.
Interest rates are for the most part, fairly similar to primary home loan interest rates. However, mortgage insurance costs will be slightly higher on secondary homes as opposed to primary homes.
Jumbo Home Loans: Guidelines vary with Jumbo home loans, but in general, expect to put at least a 15% down payment on a Jumbo home loan, for the purchase of a secondary home. Again, as your down payment increases, the interest rate will decrease.
There is not mortgage insurance on Jumbo home loans.
Rental or Investment Homes (a home that is solely used for investment):
A rental or investment home is a property whole sole use is for investment. This would be by definition an investment or income property or any property you also own in the same metro area as your primary home.
Conventional Loans: A 15% minimum down payment is required when purchasing a rental or investment home. The mortgage loan on an investment home will also have a slightly higher interest rate that a primary or secondary home.
Jumbo Home Loans: Guidelines vary with Jumbo home loans, but in general, expect to put at least a 20% down payment on a Jumbo home loan, for the purchase of an investment home. Again, as your down payment increases, the interest rate will decrease.
There is not mortgage insurance on Jumbo home loans.
These are some of the basics of down payments required to purchase a home loan, but there also many other factors to consider. As always, everyone’s situation is unique and to properly look into your specific situation, make sure and consult with a trusted local lender such as Strategic Mortgage.
For more information on current home loan programs and options for existing and potential home owners, please contact Bill Kamboukos of Strategic Mortgage at (480) 703-5844 or by emailing: firstname.lastname@example.org or online at http://www.strategicmtgaz.com
Vasilios Kamboukos – NMLS#160440