We received a lot of calls asking about the minimum down payment for different types of loans. So we thought we’d spend a little time on minimum down payments and how to set a goal for saving for your down payment.
For conventional loans, the minimum down payment required is usually 5% of the home’s value, but first time home buyers could put as little as 3% down. An FHA loan, which is backed by the government, requires a 3.5% minimum down payment and generally allows for those with lower credit scores to successfully apply for a mortgage.
Maybe you’ve heard that you should aim to have a minimum down payment of 20% and wondered why. In short, it’s to avoid Private Mortgage Insurance, or PMI. PMI is there to protect lenders should you end up defaulting on your loan. You have to pay PMI on top of your mortgage payment until you pay off 20% of the home’s value, in which case you can then end your PMI payments. This is why people aim to put down 20% as their down payment – to avoid PMI altogether.
PMI premiums can cost between 0.5% and 5% of the original loan. Over several years, that can add up quickly and make your total cost to buy a home significantly more. So while it’s not necessary to put down 20%, it’s never a bad idea to try to put down as much as you can.
We hope this helps with any questions you had on a minimum down payment and helps you plan to buy the perfect home for your family! If you need a lender or some sound advice, give us a call. As a Mortgage Lender Company, we’re all about helping family in every way we can.