If you make $72,000 a year (the income of the average first-time homebuyer), that's nearly $30,000 you'll have ready for a down payment, closing costs and moving expenses.
Why it pays to make a higher down payment. The more money you're able to put down on your home, the less of a mortgage you'll need to take out. That means you'll spend less on your monthly payments and you'll also pay less interest over the life of your loan.
You may have heard that a down payment should be 20% of a home's purchase price, and while it does have advantages, it's not necessary. A Federal Housing Administration (FHA) Mortgage has a minimum down payment of only 3.5%.
For example, let's say you want to buy a home that costs $250,000. You have $25,000 in savings to make a down payment, covering 10% of the home's value. That means your mortgage will have to cover the remaining 90% of the purchase, or $225,000.
If you are purchasing a $300,000 home, you'd pay 3.5% of $300,000 or $10,500 as a down payment when you close on your loan.
A conventional loan requires a credit score of at least 620, but it's ideal to have a score of 740 or above, which could allow you to make a lower down payment, get a more attractive interest rate and save on private mortgage insurance.
The more money you put down, the better. Your monthly mortgage payment will be lower because you're financing less of the home's purchase price, and you can possibly get a lower mortgage rate.
How much deposit do you need? For a first-time buyer in the UK, the average house deposit is currently around 15%. Ultimately, the larger the deposit, the smaller your interest rate will be and consequently, the lower your monthly repayments will be. A 15% deposit on a property priced at £350,000 would be £52,500.
Down Payment / Funding Fees
Assuming a $150,000 purchase price, this means you will need a minimum down payment of $5,250.
For a home price of $250,000 the minimum down payment would be $8,750.
Typically, mortgage lenders want you to put 20 percent down on a home purchase because it lowers their lending risk. It's also a “rule” that most programs charge mortgage insurance if you put less than 20 percent down (though some loans avoid this).
The average down payment in America is equal to about 6% of the borrower's loan value. However, it's possible to buy a home with as little as 3% down depending on your loan type and credit score. You may even be able to buy a home with no money down if you qualify for a USDA loan or a VA loan.
Mortgage amount: $200,000 — This example assumes you have no other debts or monthly obligations beyond your new housing costs, a 20% down payment, and a good credit score. With that down payment, your $200,000 mortgage would buy you a home worth $250,000. Salary: $94,000 per year.
Pros. A 20% down payment is widely considered the ideal down payment amount for most loan types and lenders. If you're able to put 20% down on your home, you'll reap a few key benefits.
If you're taking out a Federal Housing Administration, or FHA, loan and putting down less than 20%, you'll still need to pay private mortgage insurance each month, but it'll be called a mortgage insurance premium, or MIP, instead of PMI.
If you put 10% down, you'll owe approximately $121 a month in PMI insurance. If you were putting that money in a low-cost index fund instead, you would have over $14,000 in a retirement account after seven years, assuming historical returns.
If they put 5% down ($15,000), which is usually the bare minimum you can put down with most conventional loan programs today, their monthly payment on that $300,000 home would be approximately $2,000.
Example. If the home price is $500,000, a 20% down payment is equal to $100,000, resulting in a total mortgage amount of $400,000 ($500,000 - $100,000). The average down payment in the US is about 6% of the home value.
Monthly payments for a $400,000 mortgage
On a $400,000 mortgage with an annual percentage rate (APR) of 3%, your monthly payment would be $1,686 for a 30-year loan and $2,762 for a 15-year one.
There are no little steps – you open up better deals every time you hit these milestones, 10%, 15%, 20% and so on. When you get a mortgage deposit of 20%, you really start to get attractive mortgages. This means that the recommended minimum deposit size is 20% of the price of your new home.
In laymans terms, the definition of a first-time buyer is an individual who has never owned a property before. To put it another way someone getting a mortgage who isn't a homeowner, homemover, buy-to-let investor or just remortgaging is classed as a first-time buyer.
An FHA loan has lower down payment requirements and is easier to qualify for than a conventional loan. FHA loans are excellent for first-time homebuyers because, in addition to lower up-front loan costs and less stringent credit requirements, you can make a down payment as low as 3.5%.
A 50 percent down payment can also increase your purchasing power, as it results in a lower loan balance and monthly payment than a smaller down payment would yield. With a lower balance and loan payment, you free up more of your gross income, which also minimizes the lender's risk.
You may have heard that in order to buy, you should have 20 percent of the total cost of the home saved up for the down payment. Actually, you can choose how much to put down based on what works best for your situation. Putting 20 percent down has a lot of benefits.