A Beginner’s Guide to Down Payments for a Home

by Matt Brookens | Nov 27, 2019

For first-time homebuyers, one of the most daunting aspects of buying a home is the idea of putting in a down payment. In theory, this nervousness is for good reason: after all, down payments as most people know them are large sums of money, and they symbolize a major long-term investment ushering in a brand new phase of your life. In practice, though, there’s much more to down payments that meets the eye – and, for first-time homebuyers, that’s a very good thing! If you’re looking to buy your first home, rest assured that there is more than one down payment option available to you. In this guide to down payments for a home, we’ll explain the basics in order to get you set up for success as you begin to evaluate your down payment options. Ready to take the first step toward homeownership? Keep reading!

Down Payments Defined

First and foremost, let’s set the foundation by getting a clear definition of what a down payment for a home actually is. The down payment is a percentage of your home’s total price that you pay to the seller up-front when you purchase it. Your mortgage, which is essentially a big loan from a financial institution that you pay back over a set amount of time, is used to cover the rest of the home’s cost.

It’s important to note that this definition of a down payment does not include an exact percentage or amount of money that you must pay. This is because no two down payments, or home buying situations, are identical. Ultimately, the down payment you go with for your first home will depend on an array of factors, like your financial circumstances and the type of loan you take out for your home.

The general consensus is that it’s a good idea to put as much money down as you can: the more money you put down, the more equity you’ll have in your home upfront – and the less you’ll have to pay in interest. That being said, a substantial down payment isn’t the end-all, be-all to homeownership; it’s completely possible to successfully and responsibly purchase a home without a massive down payment.

Types of Loans

Generally speaking, the type of mortgage you take out will have the most impact on the amount of money you’ll have to put down. This wouldn’t be much of a guide to down payments for a home if we didn’t explain your mortgage options:

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Conventional Loans

Traditional 30-year mortgages require that you put at least 5% down when purchasing a home. So, if your prospective home is priced at $300,000, your down payment will have to be a minimum of $15,000.

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Federally Backed Loans

If you go with a mortgage that’s funded by the federal government (like an FHA loan), you’ll be asked to put 3.5% of the home’s price down. With an FHA loan, a $300,000 home would require a down payment of $10,500. FHA mortgages are an excellent option for first-time homebuyers because they allow you to go with a low down payment as well as with a relatively low-interest rate.

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VA Loans

United States military members and veterans have the option of choosing a VA loan, which doesn’t require any money down. Of course, members of the US military and veterans are welcome to make a down payment if they’d like to; it’s just not mandatory under a VA loan.

Choose What’s Right for You

This guide to down payments for a home is designed to present you with the options available to you alongside some background information to contextualize it. Ultimately, you have every right to decide what works best for you – and we strongly encourage working with a real estate professional who can help guide you through your options.

Ultimately, your down payment is only one part of a longer, extremely exciting road to homeownership. To learn more about finding the loan and down payment structure that is right for you, don’t hesitate to reach out to us for a free consultation. We’re here to help.

Agile Group with Casa Fina Realty provides expert market knowledge to help you throughout all of your real estate needs. Our goal is to provide value to our clients as quickly as possible. Our team is equipped to adapt to each client’s needs. We are responsive, personal, and flexible. We strive to build strong relationships with our clients based on transparency and confidentiality.

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