Purchasing a home is one of the biggest financial decisions you’ll ever make. But before you can purchase a home, you’ll need to figure out how to afford a down payment.
For a first-time home buyer, the down payment can be the biggest hurdle to clear in affording a home—and it can set your price range in terms of the amount of home you’re able to purchase. But the amount of down payment you’re required to put down on a home can vary depending on several different circumstances, and your preferred down payment amount may be influenced by factors such as the price of the home, insurance requirements, and/or whether you’re planning for renovations to that home.
If you’re currently working to get your finances in order to purchase your first home, here’s a helpful guide to what you can expect from this process.
How Much Down Payment for a First-Time Home Buyer?
The amount of down payment required for a home depends on several factors, including the mortgage lender, the type of mortgage you’re seeking, the cost of the house you’re buying, and your own personal finances.
In many cases, lenders will set a minimum down payment amount that is based on your own financial health. With a weaker financial portfolio—which can be affected by your credit score and your average income relative to the cost of a mortgage—a lender may request a larger down payment approach 20 percent of the value of a home.
In general, a 20 percent down payment will maximize your odds of a mortgage approval, and it will also save you the cost of paying for private mortgage insurance (PMI) to insure your mortgage if you become unable to pay it off. However, if your financial background is in solid shape, you may qualify for conventional loans with just a 10 percent down payment, or even 5 percent.
If you’re looking to purchase a $300,000 home, for example, a 20 percent down payment will equal $60,000. For a 10 percent down payment, you’ll only have to pay $30,000 up-front, which can make a home purchase far more accessible to first-time buyers. You should also keep in mind that a larger down payment can increase your odds of having your offer accepted in a competitive market: Larger down payments are viewed as more reliable by many sellers.
Is There a First-Time Home Buyer Minimum Down Payment?
While individual lenders will set their own minimums for conventional loans, there are some specific loan programs targeted to first-time buyers that offer unique rules and criteria regarding down payments. These programs include:
- Federal Housing Administration (FHA) loans: This loan program is designed to support first-time home buyers and allows down payments as small as 3.5 percent of the home’s sale price. This program has other requirements that must be met to qualify for an FHA mortgage, including limits on the price of a potential home purchase.
- USDA loans: Some rural and suburban homes may be purchased through a USDA Rural Development Program, which incentivizes home purchases in these locations by requiring requiring no down payment.
- VA loans: Veterans and active military service members, as well as surviving spouses, can qualify for VA loans that require no minimum down payment.
Other subsidized and government-sponsored loan programs may also offer unique rules regarding minimum down payments. Check with those organizations for specific, up-to-date information on these requirements.
Can I Get a First-Time Home Buyer Loan Without a Down Payment?
While it’s hard to calculate an average down payment for first-time home buyers, most first-time buyers are either taking advantage of specific loan programs, or meeting lender requirements for a down payment between five and 20 percent. However, it is possible to qualify for no down payment as a first-time home buyer if you’re eligible through one of the programs mentioned above.
If you don’t qualify for one of those programs, your lender is almost certain to require a down payment in some amount. While there are financing options available that may theoretically allow you to finance a down payment—such as through a separate personal loan or a piggyback loan—these financing options come with significant drawbacks, including a higher interest rate and the possibility that your lender will decline to offer financing due to the perceived risk of financing your down payment.
In addition, certain lending programs and loan types may not allow your down payment to be financed through a separate lender.
First-Time Home Buyer Down Payment Assistance Options
If you’re struggling to save for a down payment or are looking for ways to make this saving process easier or faster, the easiest option is to find out if you qualify for a loan program offering low down payments. Many first-time borrowers can qualify for an FHA loan, for example. In addition, some state and local programs may offer down payment assistance through special loan programs targeted to first-time home buyers.
If you’re interested in buying a home but haven’t saved up for a large down payment, it may be helpful to contact a lender or real estate agent to see if those professionals can point you toward other types of assistance that may increase your home purchasing power. Do your research to find not only the most competitive rate for your mortgage but also the best loan options to afford a down payment on your future home. Your next best step is to reach out to a local expert, to help you determine your next best steps in buying your first home.