When buying a home lenders usually want you to put a down payment on the house. A down payment is an amount of money you put on the house so the lender knows you also have some risk involved in the transaction. The source of the down payment is also important as it needs to be traceable so lenders know the money is not coming from illegal funds. Many first time home buyers ask themselves “what is the minimum down payment on a house? and “is it better to put a large down payment on a house?”.
Minimum Down Payment On A House For FHA and Conventional Loans
Different programs have different minimum down payment on a house. For FHA government-backed mortgage you must put down at least 3.5% of your credit qualifies if you are below a 579 credit score you must put down 10%. Conventional loans require 5% put down but can vary on the lender. lastly, VA or veteran loans can have a 0% down payment if you qualify. If you qualify you can also look into section 8 housing.
Is It Better To Put A Large Down Payment On A House?
You might just want to put the minimum down payment on a house so you don’t have to spend as much right? While you might not be spending that much in the short term in the long term it might not work out. Of course, if you don’t have the funds to put a larger down payment down do not worry and talk to your mortgage broker about what they can do for you. But if you have the funds to put down a larger down payment that might be smarter.
For one down payment directly affect your LTV or loan to value which affects your interest rate. For example, on a $200,000 home if you were to put 10% down or $20,0000 your LTV will be 90% vs putting 20% down or $40,000 making your LTV 80%. The lower LTV might get a better interest rate because the lender sees the borrower has more risk to lose if they default or foreclose.
There might be extra costs of putting down the minimum down payment on a house. On conventional loans, any loan with less than 20% down needs PMI or private mortgage insurance. This is an extra cost you pay monthly to protect the lender.
How Much Is A Good Down Payment On A House?
You should put down as much as you can afford to. If it is possible putting 20% or more is the best option because you eliminate PMI and can lower your interest rates saving you money in monthly payments. Here is a mortgage calculator tool you can use to see how much your payments are with different down payments.