Home Buying Down Payment Requirements

A big kitchen, nicely landscaped lawns and an open floor plan. These are the things home buyers are often thinking about when they start planning to purchase a house. Considering your wish list early in the process is great – as long as you’re also keeping finances top of mind. While getting pre-qualified gives you an idea of the total cost you may be able to afford, it’s important to calculate the likely down payment required based on the type of loan you’re taking out.

Down payment requirements vary by situation and are different depending on the type of loan you have. Here’s a look at some of the more common mortgage loan types and the down payment requirements that come with each.

• Conventional Loan – Standard Conventional Loans require a minimum of a 5% down payment, while the Home Possible or Home Ready Loans requires a 3% payment as long as you meet the maximum income guidelines. While home buyers can pay the lowest amount, any down payment less than 20% will typically require you to take out private mortgage insurance, or PMI.  If you want to avoid mortgage insurance, ask your lender about a combination loan (such as a 80/15/5).
• FHA Loan – The Federal Housing Administration offers government guaranteed loans with a 3.5% down payment. FHA is a great option for financing because of the low down payment and less stringent credit guidelines.
• VA Loan – A VA Loan is home mortgage option offered to United States veterans and service members. There is no down payment requirement for this loan type, which is one of its many benefits.
• Rural Development Loan – Home buyers taking advantage of a Rural Development Loan also receive the benefit of a 0% down payment requirement. However, there are additional guidelines that may apply depending on your location and family size.
• Portfolio Loan – Each financial institution may offer different portfolio loans. Some examples, based on the portfolio loans we offer at Bankers Trust, include:
  • CRA Loan – CRA stands for Community Redevelopment Act, and these borrowers must meet certain location and income requirements to qualify. CRA Loans require a 3% down payment.
  • ARM Loan – Also known as an Adjust Rate Mortgage Loan, the down payment requirements for ARM Loans can vary from no down payment to 5%. The exact amount depends on a variety of factors, which you’ll want to discuss with your lender if you’re considering an ARM Loan.

No matter your situation, make sure to consult with your lender which loan options you qualify for and the loan type that is best suited for your needs. This will help you determine how much you should plan to budget for a down payment and how that amount might affect your overall search.

If you have questions or want to learn more, we’re ready to help.