If you’ve been saving to purchase a new home, you are likely wondering how big of a down payment you need. While the final answer depends greatly on your own personal goals and situation, here are some guidelines that can help you plan.

The old 20% rule

A 20% rule of thumb has been around for a long time and has become the standard answer from people outside of the mortgage industry. Putting at least 20% down on a house does come with significant benefits but it’s not the only option.

Down payment by mortgage type

The type of mortgage you choose to purchase your home will affect the minimum down payment requirements for loan approval. Most conventional Fannie Mae and Freddie Mac conforming loans require a down payment of 5%, but there are a few exceptions.

• First-time home buyers who earn at least 80% of the median income for their area may qualify for a 3% down payment but only for a fixed-rate loan
• If you are purchasing your second home, the minimum will likely be 10% or more
• Loans for multi-family properties typically require 15%

Mortgages backed by the Federal Housing Administration (FHA) require as little as 3.5% down and VA or USDA loans, guaranteed by the U.S. Department of Veterans Affairs or U.S. Department of Agriculture, have no down payment requirement.

Credit history

Down payment requirements will also vary depending on your credit score. To qualify for a conventional loan, you will need a score of 620 or higher. To qualify for the 3.5% minimum for an FHA loan, you will need 580 or better. Buyers with a credit score under 580 who wish to purchase with an FHA loan are required to put down a minimum of 10%.

Confused about which mortgage program is right for you?

With so many options to choose from, it can be difficult to know which type of mortgage to choose and how much money to put down. Speaking with a mortgage broker is a great way to learn about the pros and cons of each choice for your individual situation. At Lenderment, this service is free of charge. Get in touch, and we’ll be happy to discuss down payment options for your next home.

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