How to Calculate Your Down Payment by Loan Type

A big kitchen, two-car garage or master bathroom are examples of home amenities buyers are often thinking about when they are planning to purchase a home. 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 also important to calculate the likely down payment required.  

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

Conventional Loan 

Standard Conventional Loans are generally more flexible when it comes to eligibility requirements. If your credit score is 620 or higher, then you typically qualify for one of these loans. This loan requires a minimum 3% down payment. However, it’s important to note any down payment less than 20% will typically require private mortgage insurance (PMI).  

FHA Loan 

The Federal Housing Administration (FHA) offers government-guaranteed loans with a 3.5% down payment if your credit score is 640 or higher. FHA is an especially great option for first-time homebuyers because of the low down payment and less stringent credit guidelines.  

VA Loan 

This special loan is guaranteed by the Department of Veterans Affairs (VA) for United States veterans and service members. While the VA doesn’t have a required credit score for this loan, lenders are allowed to set and enforce their own minimum requirements. There is no down payment requirement for this loan type, which is one of its many benefits. 

Rural Development Loan 

Rural Development Loans are available if you are looking to finance a primary residence in an eligible rural area as defined by the USDA. Homebuyers taking advantage of this loan receive the benefit of a 0% down payment requirement with 30-year fixed rates. Your household income cannot exceed 115% of the median household income in your area. Having a credit score of 640 is recommended to qualify, but this requirement can vary by lender. Additional guidelines may apply depending on your location and family size. 

Portfolio Loan

Each financial institution may offer different portfolio loans. Some examples include: 

CRA Loan – CRA stands for Community Reinvestment Act, which is an initiative that prioritizes serving the financial needs of low- to moderate- income households. CRA Loans may not have a credit score requirement, but they may have a down payment percentage requirement.

ARM Loan – Also known as an Adjustable 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. Generally, ARM loans require a credit score of at least 680.   

No matter your situation, make sure to consult with your lender to determine which loan type is best suited for your needs.

If you have questions or want to learn more, contact a Mortgage Loan Officer today.