Your down payment amount depends on three factors: the requirements of the lender you choose, the type of mortgage involved, and your financial situation. A conventional loan, which is not guaranteed or insured by the federal government, usually requires a down payment of 5% to 20%. Find out how much you should put down.
- Down payments less than 20%. If you put down less than 20% you’ll need private mortgage insurance (PMI), which guarantees payment to the lender in case of default. Many buyers choose to get PMI and save their cash for other purposes even if they do have 20% to put down. Putting less cash down creates both a larger monthly payment and a larger interest cost. However, the higher interest costs creates a larger tax deduction for most homebuyers.
- Special mortgages with 0% to 5% down. Some programs, such as the Federal Housing Administration (FHA) loan program and Veterans Administration (VA) loan program, provide loans with low down payment for qualified borrowers. FHA loans are available to all borrowers, while VA loans are available only to individuals with appropriate government service.
- State-backed loans are also available for first-time purchasers. We can give you information on loan programs with low down payments.
- Down payment help. You can also use gifts and grants from parents, friends, community groups and others for your down payment. To satisfy lender requirements, the donor will be asked to supply a gift letter showing that there is no expectation of repayment. For gift and estate tax information, see your tax professional.
- Shared equity. Instead of an outright gift, family members, friends and even investors can provide some or all of the down payment in exchange for an equity interest in the home. This type of deal can provide tax advantages for both parties, but an attorney and tax professionals should review the agreement.