The Benefits of Different Down Payment Amounts


Homebuyers don’t necessarily have to put a 20% down payment for their home mortgage. For first-time homebuyers, young families, or those who are in a lower-income bracket, coming up with a 20% down payment is often unachievable.

Fortunately, homebuyers today don’t have to come up with 20% even though it’s long been considered a benchmark. What is the average down payment? According to the National Association of Realtors, in 2018, first-time homebuyers averaged a mere 7%, while repeat buyers put down about 16%.

How are the minimum down payments calculated? There are different types of loans that require different criteria.

Conventional loans. These are not guaranteed or backed by the federal government, and borrowers can often find down payment minimums as lows as 3%. Keep in mind that to receive that low of a minimum the borrower must have a good credit score and qualify for the lender’s requirements..

FHA loans. These loans, backed by the Federal Housing Administration (FHA), generally ask for a 3.5% down payment. FHA loans are not as stringent when it comes to the borrowers’ credit score, and lower-income borrowers can benefit from these loans.

VA loans. If the borrower is active in the military or a retired veteran, they may qualify for a U.S. Department of Veterans Affairs–backed VA loan.

While it’s beneficial to take advantage of lower down payment loans if the borrower is having trouble coming up with the money or has a poor credit score, the more money a homebuyer can put down, the more benefits they receive:
  • No mortgage insurance.
  • Lower monthly payments.
  • Lowered mortgage interest rates.
Here are a few benefits of putting less money down:
  • Save money for closing costs, homeowners’ insurance, property taxes, and other incidentals.
  • Have money on hand for maintenance, appliances, and landscaping.
  • Put the money into a high-yield savings account and earn more interest.
Homebuyers today have many choices when it comes to their mortgage and down payment, and they don’t always have to stick to the old benchmark of 20%.

Source: Nerd Wallet