One of the most common down payment options is 20% but that’s not the only option.
When you are buying a home, there are many things to think about – like the monthly mortgage payment and interest rate. But one of the most important factors is the down payment for a conventional loan.
This is the amount of money that you pay upfront when you buy a home. The down payment can be a challenge for some people, but there are several down payment options available.
In this blog post, we will discuss how much you need down on a conventional loan. There are five options!
Conventional Loan Down Payment Option # One: 20%
One of the most common down payment options is 20%.
This means that you would pay 20% of the purchase price as your down payment.
For example, if you were buying a house for $200,000 then your down payment would need to be $40,000 (20% x 200K = 40k).
With 20% you can purchase an investment property, a second home, get a jumbo loan and you avoid having to pay mortgage insurance (PMI).
Making a larger down payment will lower both the overall cost of interest paid over the lifetime of the loan, as well as the monthly payment of the home.
Option # Two: 15% down
Another common conventional down payment option is 15%. This means that you would pay 15% of the purchase price as your down payment.
For example, if you were buying a house for $200,000 then your down payment would need to be $30,000 (15% x 200K = 30k).
Conventional Option # Three: 10% Down
A less common down payment option is to pay only 10% of the purchase price as your down payment.
For example, if you were buying a house for $200,000 then your down payment would need to be $20,000 (10% x 200K = 20k).
Private mortgage insurance (PMI) is required for all conventional loans with less than 20% down.
The amount of PMI you pay is based on your credit score, type of home, and the loan to value.
Option # Four: 5% Down Payment
If you are unable to make a 20% or 15% down payment, then there is another option – the five percent down conventional loan. With this option, you would pay just five percent of the purchase price as your down payment.
For example, if you were buying a house for $200,000 then your down payment would need to be $10,000 (5% x 200K = 10k).
This option is perfect for those who already own a home and are looking to purchase another primary residence.
The 5% option is also available for a NonQM loan which is great for self employed borrowers. There is no PMI on NonQm but the interest rates are higher.
Option # Five: 3% Down Payment
The three percent down conventional loan. With this option, you would pay just three percent of the purchase price as your down payment.
For example, if you were buying a house for $200,000 then your down payment would need to be $6000 (3% x 200K = 6000).
This option is perfect for first time home buyers because it allows you to put down a small amount of money, it’s a smaller down payment than the FHA loan.
PMI will be required, and there is a max limit on how much can be purchased with 3%.
If you are looking to purchase a manufactured home, the minimum down is 5%.
3% is only allowed for first time home buyers and there is a max loan amount for this option. It depends on the county you are in.
What is a Down Payment?
A down payment is an up-front payment toward the total cost of the home. This amount is made by the buyer, and given to the seller, at closing.
The down payment you make on a home impacts what kind of mortgage you can qualify for.
Don’t have the down payment? It’s time for a gift.
The most common roadblocks to becoming a homeowner are high down payments.
If you don’t have enough saved but want to buy a home, many lenders allow borrowers to use gift money as a down payment.
There are various restrictions on who can give you a down payment gift based on the type of mortgage you’re applying for.
The down payment gift for a conventional loan must come from family. Fiancés and domestic partners are also considered part of the family.
How Your Down Payment Impacts Your Offers
The 2022 housing market is tilting towards a “sellers market” and isn’t slowing down. There are lots of buyers, but not enough sellers. The sellers have control in a sellers market.
When it comes to making an offer, you’ll almost certainly have competition. Houses are selling quickly, so you want to put your best foot forward when putting in an offer. Sellers are receiving offers from multiple buyers and typically will go for the buyer who has the strongest financial profile.
A buyer who is making a large down payment is usually chosen over someone who has a lower down payment.
Read more about this subject: How to Get your Offer Accepted in a Seller’s Market
Fixed or adjustable rate
Conventional home loans can have fixed mortgage rates or adjustable rates. With a fixed-rate loan, the interest stays the same over the entire life of the loan.
With an adjustable-rate mortgage, the interest rate remains the same during a set period of time at the beginning of the loan, and then will adjust. The adjustment can either be up or down.
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