First-time home buyer’s guide: Making a down payment

Gina Pogol
The Mortgage Reports contributor

In this article:

If you want to get a mortgage, you’ll generally need to contribute some amount of money. This is known as a down payment.

  • As a homeowner, the size of your down payment is up to you. If you put down more up front, you will borrow less from the lender, which reduces your monthly payment. If you make a smaller down payment, you can keep more cash in your savings account, and you may be able to buy a home sooner.
  • You will be required to make the minimum investment required by your lender. Some loans, like the FHA loan, require 3.5% down. The Conventional 97 loan requires just 3% down. And the VA loan offers a 100% financing option. Research your loan options to understand what you may be required to put down.
  • First-time home buyers may also have access to down payment assistance programs, many which “grant” money instead of requiring repayment.

Buying your first home: The down payment

First-time home buyers face more hurdles than repeat buyers.

A first-time home buyer may have less savings. He or she might have a collection of student loans and other large debts. Perhaps the buyers is just starting a career. And of course, first-timers have no buying experience.

New buyers may even be about to live on their own for the very first time.

First-timers buy one-third of homes

According to the National Association of REALTORS®, first-time home buyers account for 1-in-3 homes sold nationwide. This is the lowest rate in close to 30 years.

Yet, with mortgage rates low and an abundance of low- and no-down payment mortgages available from mortgage lenders, there’s never been a simpler time to get approved for your very first home loan.

This post is the first of a four-part series meant to help first-time home buyers get approved for their first mortgage and become homeowners.

Verify your low down payment loan eligibility (Apr 4th, 2020)

What is a “down payment?”

If you can’t or don’t want to buy a house with cash, you need financing — a mortgage.

Sometimes, a bank will lend you the entire amount you need to buy a home. This is known as 100% financing.

However, most mortgages require some contribution from the borrower.

If you purchase a home for $100,000 and borrow $90,000 (90%), you would put $10,000 (10%) down on the house.

Choose your loan amount

As a home buyer, the size of your down payment is up to you.

You can put up twenty percent or more, or you can skip the down payment altogether. Each choice has its benefits.

For example, when you put more money down, you borrow less money from your lender. That reduces your monthly mortgage payment.

You may also get access to lower mortgage rates.

When you make a small down payment, you keep more cash in your savings account for life’s emergencies.

It also means that you can buy a home today instead of waiting 8 years to save for a down payment.

Verify your low down payment loan eligibility (Apr 4th, 2020)

How much down payment is required to buy a home?

As a first-time home buyer, you have access to a wide range of mortgage loans and mortgage loans can be customized to meet your needs.

Your loan amount is one of your choices.

The down payment can be as large as you wish, or as small — so long as you make the minimum investment required by your lender.

The five most-common low- and no-down-payment mortgages used by first-time home buyers are the FHA loan, the VA loan, the USDA loan, the Conventional 97, and the HomeReady™ mortgage.

Each is described below.

The FHA loan

FHA loans require a down payment of 3.5% of a home’s purchase price, at minimum.

These products are popular with first-time home buyers because the program allows below-average credit scores.

FHA mortgage approval standards are considered to be the most friendly toward first-time buyers.

Verify your FHA loan eligibility (Apr 4th, 2020)

The VA loan

VA loans are available to members of the U.S. military and veterans of the Armed Services.

These mortgages provide a 100% financing option, and VA mortgage rates are often lower than those of other programs.

Verify your VA loan eligibility (Apr 4th, 2020)

The USDA loan

Rural Housing or USDA loans also allow 100% financing. The program is available for homes in rural areas and less-dense suburban neighborhoods nationwide.

USDA mortgage rates are often as low as VA mortgage rates.

Verify your USDA loan eligibility (Apr 4th, 2020)

The conventional 97

The Conventional 97 is available to home buyers with above-average credit scores. A Conventional 97 loan allows buyers to receive cash gifts for their down payment, which is only 3%.

This program has a loan size limit of $765,600.

Verify your conventional 97 loan eligibility (Apr 4th, 2020)

The HomeReady™ mortgage

The HomeReady™ mortgage is another 3% down program. This program is geared toward multigenerational households, but all home buyers are welcome to apply.

Home buyers using HomeReady™ get access to discounted mortgage rates, and can use the income of boarders and other household residents to help get mortgage-qualified.

Verify your HomeReady™ loan eligibility (Apr 4th, 2020)

Mortgage Programs Infographic - FHA VA USDA Conv

Down payment assistance programs

First-time home buyers often cite “making a down payment” as a primary obstacle to homeownership.

However, in addition to an abundance of low- and no-down-payment mortgages, first-time buyers have access to down payment assistance programs (DPAs) — many of which “grant” money instead of requiring repayment.

And the programs are widely available, too.

According to a study from housing data company RealtyTrac, there are 78 million single-family homes in the United States, including condominiums. 68 million — or 87% — of these homes potentially qualify for assistance.

As a first-time buyer, therefore, you can use assistance programs to help reduce your cash required at closing; and, to reduce your monthly mortgage payment.

Strangely, less than ten percent of home buyers even apply for down payment assistance.

Home buyers often don’t apply for such programs because they’re unaware that the down payment assistance programs exist, they don’t believe they’ll qualify, or they plain don’t know where to get access.

To find out for which assistance programs you may be eligible, talk to your mortgage lender. Most banks have applications on-hand for down payment assistance programs, or can point you to a website.

The average assistance amounts to $11,565.

What Are Today’s Mortgage Rates?

With mortgage rates low and U.S. rents rising, it’s an excellent time to consider homeownership. And, as a first-time buyer, you have lots of options.

Get today’s live mortgage rates now. Your social security number is not required to get started, and all quotes come with access to your live mortgage credit scores.

Verify your low down payment loan eligibility (Apr 4th, 2020)

Step by Step Guide

Buying Your First Home