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How much of a down payment do you need for a house?

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You don’t necessarily have to pay a 20% down payment when buying a home.

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If you plan to buy a house, you will need a down payment, but how much it costs is another matter. That depends on the price range you’re shopping for, the type of mortgage you’re using, and your monthly budget.

Here’s how to accurately calculate your down payment (no, you don’t need 20%).

What Mortgage Lenders Need

Since each mortgage program has different down payment requirements, the first step is to decide which type of loan you will use to purchase your home.

If you’re ready to start the mortgage application process, it’s also important to: Buy a render and find the conditions that work best for you.

Mortgage options typically include:

  • FHA loan: These require a 3.5% down payment if your credit score is 580 or higher. For scores between 500 and 579, a 10% down payment is required. You are also obligated to prepay your mortgage insurance premium, adding one to your monthly mortgage payment.
  • Traditional loan: These mortgages will require at least a 3% down.Most mortgage lenders also require monthly payments private mortgage insurance (PMI) Premium if down payment is less than 20%.
  • USDA loan: These loans actually require no down payment at all. However, you must purchase a home in designated rural areas and meet certain income standards.
  • VA loan: Like USDA loans, these mortgages also have no down payment requirements. However, it is only available to veterans, military personnel, and their spouses.

Not sure which loan option is right for you? Use online tools now to determine what makes the most financial sense to you.

Keep in mind: Knowing your loan program is only part of the equation. Accurately estimating your down payment also requires a good idea of ​​what price range you’re shopping for. At 0.035 (3.5%), I know I need a down payment of at least $12,250.

personal considerations

As noted above, no mortgage loan requires a 20% down payment. But putting less will cost you.

For example, on traditional loans, lowering interest rates below 20% means adding PMI costs to your monthly mortgage payments. According to Freddie Mac, these typically run between $30 and $70 for every $100,000 borrowed. So a $400,000 loan will cost you $120 to $280 extra per month.

You should also consider your monthly budget when deciding what to put. A smaller down payment means a larger monthly mortgage payment, which increases the burden of long-term interest rates.

Let’s look at some examples. Suppose you buy a $400,000 house using a 30-year conventional mortgage at an interest rate of 5.5%. The cost of payments and interest at various down payment levels are as follows:

down payment amount

Monthly payment (principal and interest)

long-term interest expense

3% ($12,000)

$2,203

$405,087

5% ($20,000)

$2,157

$396,735

10% ($40,000)

$2,044

$375,854

20% ($80,000)

$1,816

$334,092

Advantages and disadvantages of 20% down payment

It is clear that a large down payment is advantageous. This allows you to make fewer monthly payments, avoid mortgage insurance, and significantly reduce your total interest expense.

But coming up with $80,000 (as in the table above) is certainly not easy. It can even deplete your savings. This becomes difficult in the event of sudden home repairs or medical bills. Life can even become difficult if you lose your job or other source of income. pay the mortgageand are at risk of foreclosure.

If you’re not sure how much to invest in your home purchase, talk to a mortgage expert or financial advisor. They’ll run the numbers and help you decide what’s best for your budget.

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