If you’re obtaining a mortgage for your new home, you’ll likely be making a down payment. While some loan types don’t require a down payment (namely, VA or USDA loans), the vast majority of borrowers are required to pay at least 3.5% towards their new home at settlement time.
If you’re able to pay 20% of the purchase price upfront, you will avoid paying private mortgage insurance (PMI) which typically costs between 0.5 and 1% of the loan each year. This amount is added to your monthly payment. For that reason, we typically recommend that buyers put down 20% whenever possible.
However, nearly all first-time buyers (and many second, third or fourth-time buyers!) can’t afford to put down 20%. In fact, about half of EveryHome buyers obtain an FHA loan and put down just 3.5%. Another large portion of our buyers secure conventional loans and put down the minimum 5% (conventional loans require a higher down payment, but may offer better overall terms).
It’s also important to note the difference between a down payment and closing costs. In addition to the down payment, buyers are expected to pay closing costs which include taxes, title insurance, and other fees. While these items can really add up, remember that a seller’s assist and EveryHome’s Cash@Closing program can help you save on settlement day!