A lot of buyers, and especially first-time buyers, are unsure how much money they should put down on their new home. Down payment amounts can vary greatly among borrowers, and the majority of EveryHome clients put down between 3.5% and 20%. And sometimes there are even opportunities to buy a home with 0% down – and this is an option for Veterans, as well as people who are purchasing in more rural areas with a USDA loan. Your EveryHome agent can help you learn if these are options for you.
Down payments of 3.5% are one of the most popular choices with people using an FHA loan, which is backed by the government. A conventional loan, alternatively, requires a minimum of 5% down. Generally speaking, conventional loans have slightly better terms and tend to be preferred, but FHA loans have low rates and are a great choice – especially for younger borrowers.
The magic number with down payments, though, is 20%, because you can avoid paying Private Mortgage Insurance (PMI). If your down payment is less than 20%, you will be required to pay PMI, although it’s important to note that it’s not overwhelmingly expensive–especially when you consider the low-interest rates! On average, PMI costs between 0.5 and 1% of the loan on an annual basis, and it’s rolled into your monthly mortgage payment.