For most people the down payment is one of the largest expenses when buying a house. However, contrary to what you may have heard or read in the media, you don't necessarily need to bring a 10% or 20% down payment to the closing table. It's actually possible to buy a home with a much smaller down payment than that, depending on the type of financing you select.
During the housing boom last decade, anybody who could fog a mirror could buy a home with zero down, but those days are pretty much gone. Today, lending standards are much tougher than they used to be, so most prospective home buyers should expect to bring in at least something as a down payment. However, having said that, there are still some great loan programs out there that offer much smaller down payment terms than you may expect.
Mortgage lending these days is usually underwritten to either Fannie Mae or FHA guidelines, which are the dominant sources of financing today. The following is a rundown of the down payment requirements for both.
1) Fannie Mae financing: If you have excellent credit, Fannie Mae requires just 3% as a down payment. If your credit is less than excellent, expect to make at least a 5% down payment. Keep in mind that mortgage insurance will apply if your down payment is less than 20%.
2) FHA financing: If your credit is less than stellar, FHA financing is probably your better option for a home purchase. FHA guidelines are not as strict as Fannie Mae guidelines, so it is much easier to qualify if you have lightly bruised credit or a relatively recent foreclosure, short sale, or bankruptcy. FHA requires just 3.5% as a down payment.
Buying a home with FHA financing is a great way to go, but it's not without some compromises. Regardless of how big your down payment is, you'll be required to pay for two types of mortgage insurance: annual mortgage insurance (MIP), and upfront mortgage insurance premium (UFMIP).
UFMIP is charged as a percentage of the loan amount just once at loan closing (and can be financed into the loan) and MIP is renewed annually and paid in 12 equal payments as part of your regular mortgage payment.
Contrary to what you may have heard or read, FHA loans are not just for first-time homebuyers. You are very likely eligible for an FHA loan even if you've owned a home in the past.
If you're shopping for a home, hopefully this sheds a little light on how much you need to plan on bringing to the closing table as a down payment. Keep in mind that your down payment isn't all you need to pay for, however. Expect also to cover inspections (appraisals, pest inspections, and home inspections), closing costs, and the setting up of an escrow/impound account so the lender can pay your property taxes and insurance on your behalf.
It's also worth noting that you may be able to negotiate with the seller to cover all or part of your closing costs. There can be limitations here, so be sure to work closely with your lender if you plan to do this. Happy house hunting!
During the housing boom last decade, anybody who could fog a mirror could buy a home with zero down, but those days are pretty much gone. Today, lending standards are much tougher than they used to be, so most prospective home buyers should expect to bring in at least something as a down payment. However, having said that, there are still some great loan programs out there that offer much smaller down payment terms than you may expect.
Mortgage lending these days is usually underwritten to either Fannie Mae or FHA guidelines, which are the dominant sources of financing today. The following is a rundown of the down payment requirements for both.
1) Fannie Mae financing: If you have excellent credit, Fannie Mae requires just 3% as a down payment. If your credit is less than excellent, expect to make at least a 5% down payment. Keep in mind that mortgage insurance will apply if your down payment is less than 20%.
2) FHA financing: If your credit is less than stellar, FHA financing is probably your better option for a home purchase. FHA guidelines are not as strict as Fannie Mae guidelines, so it is much easier to qualify if you have lightly bruised credit or a relatively recent foreclosure, short sale, or bankruptcy. FHA requires just 3.5% as a down payment.
Buying a home with FHA financing is a great way to go, but it's not without some compromises. Regardless of how big your down payment is, you'll be required to pay for two types of mortgage insurance: annual mortgage insurance (MIP), and upfront mortgage insurance premium (UFMIP).
UFMIP is charged as a percentage of the loan amount just once at loan closing (and can be financed into the loan) and MIP is renewed annually and paid in 12 equal payments as part of your regular mortgage payment.
Contrary to what you may have heard or read, FHA loans are not just for first-time homebuyers. You are very likely eligible for an FHA loan even if you've owned a home in the past.
If you're shopping for a home, hopefully this sheds a little light on how much you need to plan on bringing to the closing table as a down payment. Keep in mind that your down payment isn't all you need to pay for, however. Expect also to cover inspections (appraisals, pest inspections, and home inspections), closing costs, and the setting up of an escrow/impound account so the lender can pay your property taxes and insurance on your behalf.
It's also worth noting that you may be able to negotiate with the seller to cover all or part of your closing costs. There can be limitations here, so be sure to work closely with your lender if you plan to do this. Happy house hunting!
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FHA mortgage insurance just got more costly! Find out how much more FHA mortgage insurance may cost you.
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