How much down payment does it take to buy a house?

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In a Nutshell

While a 20% mortgage down payment used to be the rule of thumb, and still offers advantages, government-backed loans and a crop of newer low-down-payment mortgages from private lenders allow you to put a smaller amount down when you buy a home.

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Gone are the days of needing a 20% down payment to buy a home. Government-backed loans require very little, if anything, down for qualified buyers. Plus, some newer loan products from banks and other private lenders require as little as 3% for a down payment.

Here’s what you need to know about how much down payment it takes to buy a home.

When you buy a home with a nongovernment-backed mortgage, known as a conventional loan, you’ll typically need to contribute a percentage of the home’s price in the form of a down payment. When you’re putting in some of your own money rather than getting a loan for the entire purchase price, you get an ownership stake in your home from the get-go and signal the lender that you’re a committed borrower and a good credit risk.

Many financial institutions now offer mortgages with down payments as low as 3% or 5%.

Although 20% of the purchase price of a home was for decades the down payment desired by lenders and targeted by borrowers for conventional loans, many financial institutions now offer mortgages with down payments as low as 3% or 5%. Government-sponsored corporation Freddie Mac launched an initiative earlier this year to make 3% down conventional loans more widely available. Low-down-payment loans are becoming commonplace: According to a 2018 survey released in September by the National Association of Realtors, 53% of noncash homebuyers put down less than 20%, and 74% of noncash first-time buyers put down less than 20%.

There are also government-backed loans that allow very low down payments for qualified borrowers. Loans backed by the U.S. Department of Veterans Affairs and the U.S. Department of Agriculture typically require no down payment. And mortgages insured by the Federal Housing Administration — known in the business as FHA loans — allow down payments starting as low as 3.5% for some borrowers.

Many would-be homebuyers don’t know about these low-down-payment options, according to Bank of America’s 2018 Homebuyer Insights Report, which found that 49% of renters think they need a 20% down payment to buy a home.

Advantages and disadvantages of low-down-payment mortgages

Keep in mind that putting down 20% comes with advantages, such as typically not having to pay for private mortgage insurance. A larger down payment also usually means a lower interest rate on your mortgage and a better chance of lender approval. But if scraping together that much cash just isn’t possible, a low down payment loan could work for you. Here are some of the pros and cons of going with a low down payment mortgage loan:

Advantages of low-down-payment loans:

  • You can buy a home sooner than if you wait to have 20% saved.
  • You don’t need as much money to buy a home, which is ideal if you don’t have much in savings, if you’d rather keep most of your savings in place, or you plan to invest it elsewhere.
  • Some government-backed low-down-payment loans have more lenient credit criteria.

Disadvantages of low-down-payment loans:

  • You’ll start off with less of an ownership stake in your home, known as equity, and it may take longer to pay off your mortgage. It’s also likely to take you longer to build up your equity to the point where you can borrow against it with a home equity line of credit or loan.
  • Depending on the loan, you may need to pay for private mortgage insurance.
  • Your monthly payment is likely to be higher since you borrowed more money.
  • You will likely have to pay a higher interest rate.
  • You’ll pay more interest over the life of the loan, unless you pay it off early.

Types of low-down-payment mortgages

If you’re interested in a low-down-payment loan, there are two ways to go: government-backed loans, including FHA, VA and USDA loans; and conventional loans, which is industry jargon for loans not backed by a government program or agency. The government-backed loans are most often made by private lenders and come with a variety of qualification criteria and requirements that sometimes restrict who can apply for them or where the home you want to buy must be located.

Government-backed loans with low down payments

  • FHA loans: With this government-backed loan, you can put down as little as 3.5%, and credit criteria are less strict than with conventional loans. The downside: You have to pay for mortgage insurance.
  • VA loans: If you’re a military veteran, active-duty service member or an eligible surviving spouse, you may be able to qualify for this government-backed loan that requires little to zero down payment — unless the price of the home you’re buying exceeds its appraised value — and no mortgage insurance. However, you’ll need to pay a funding fee — calculated as a percentage of the loan amount — that varies depending on your type of service, down payment amount, type of loan and disability status. The fee helps lower the cost of these loans to the U.S. taxpayer.
  • USDA loans: These zero-down-payment, government-backed loans come in two forms: direct, offered to homebuyers from the USDA; and guaranteed, offered by private lenders. The goal of both is to give low-income consumers an opportunity to buy a home in a rural area. Mortgage insurance, often called a loan guarantee fee, is required with USDA loans.

Examples of low-down-payment conventional loans

Although many mortgage lenders now offer low-down-payment loans, here are a few examples of what’s available to homebuyers who qualify:

  • Citi HomeRun Mortgage: Mortgages with down payments as low as 3% on single-family homes and 5% on condos or co-ops with no mortgage insurance.
  • Wells Fargo yourFirst Mortgage: Wells Fargo offers a 3% down conventional mortgage loan geared toward new homebuyers, but it adds that for its low down payment loans, private mortgage insurance is required.
  • SoFi: Online lender SoFi says you can put as little as 10% down on mortgages up to $3 million, with no private mortgage insurance required.

Bottom line

There are still good reasons to make a 20% down payment when you buy a home: You’ll start homeownership with a good-size chunk of equity in your house, and you usually won’t have to pay mortgage insurance, which can cost thousands of dollars a year. Plus, you’ll probably get a lower interest rate than if you put down less. But if 20% isn’t possible, don’t worry. There are more and more options on the market for you to take advantage of, even though in many cases you’ll have to pay mortgage insurance or other fees to get your loan approved.