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How Much Money Should You Put Down as a First-Time Homebuyer?

  • Writer: Jennifer Wills
    Jennifer Wills
  • Feb 6
  • 4 min read

Homeownership can be challenging for a first-time homebuyer. Understanding the down payment requirements is part of the process.

 

Knowing how much money you should put down as a first-time homebuyer helps simplify the process. The following information can help.

 

What Is a Down Payment on a Home?

A down payment is the money you pay up front to purchase a home. This amount is typically calculated as a percentage of the home’s total purchase price, with the remaining cost financed through a mortgage. For instance, a 10% down payment on a $200,000 home would be $20,000, with the remaining $180,000 financed through a mortgage.

 

How Does Your Down Payment Impact Your Mortgage?

Along with the amount of your mortgage, your down payment on a home affects your interest rate, monthly payment, and need to pay private mortgage insurance (PMI). Therefore, the higher your down payment, the lower your home’s total cost.

 

What Are the Minimum Downpayment Requirements?

Although a 20% down payment is ideal, many first-time homebuyers who meet certain credit score, employment, and income requirements can purchase a home with as little as 3% down. Low-down-payment mortgages make the homebuying process more affordable for first-time buyers. For instance, eligible U.S. Armed Forces veterans or active-duty service members who qualify for a Veterans Assistance (VA) loan, or individuals who meet local income limits and purchase a home in a qualified rural area through a United States Department of Agriculture (USDA) loan, can purchase a home with 0% down.

 

How Much Should You Put Down as a First-Time Homebuyer?

The amount you put down as a first-time home buyer depends on the following:


What Are the Advantages of a Smaller Down Payment?

The advantages of making a smaller down payment to purchase a home sooner include:

 

What Are the Advantages of a Larger Down Payment?

The advantages of saving up more to make a larger down payment on a home include:

  • Greater appeal to sellers in competitive markets, increasing the likelihood of an accepted offer

  • No PMI with a 20% down payment

  • A smaller mortgage and monthly payment

  • A potentially lower interest rate

  • Reduced fees and interest payments

  • A lower total cost of the home

 

How Can You Lower Your Down Payment as a First-Time Homebuyer?

The following strategies can help you lower your down payment as a first-time homebuyer:

 

Look into First-Time Homebuyer Down Payment Assistance Programs

Down payment assistance programs (DPAs) can help with your upfront contribution to purchasing a home. Some programs help cover closing costs, further reducing your upfront expenses.

 

Types of down payment assistance include:

  • Grants: Funds that don’t require repayment

  • Forgivable loans: Second mortgages that might be forgiven over time

  • Low-interest mortgages: Affordable second mortgage options to complement your first home loan

  • Deferred-payment mortgage: A mortgage with payments postponed until you sell or refinance your home.

 

 Nonprofit organizations or local governments typically run DPAs. Qualified homebuyers can receive $5,000 to $35,000 toward a down payment and/or closing cost assistance.

 

Research First-Time Homebuyer or No-Down-Payment Mortgages

 

1.   Conventional 97 loans

  • 3% down payment

  • PMI required, which can be canceled upon reaching 20% equity

  • Stricter credit score and debt-to-income ratio requirements than FHA loans

 

2.   HomeReady and Home Possible mortgages

  • 3% down payment

  • Discounted interest rates

  • Reduced mortgage insurance

  • Homebuyer education course required

 

3.    Federal Housing Association (FHA) loans

  • 3.5% down payment with a credit score of 580+

  • 10% down payment with a credit score of 500-579

  • Mortgage insurance for the life of the loan

  • Increasing monthly payments

 

4.    Veterans Assistance (VA) loans

  • 0% down payment

  • Flexible credit score requirements

  • Competitive interest rates

  • No PMI

 

5.    United States Department of Agriculture (USDA) loans

  • 0% down payment

  • Available in USDA-defined rural areas

  • Income limits up to 115% of the area’s median

  • Lower mortgage insurance than FHA loans


What Other Home-Buying Costs Should You Consider?

In addition to your down payment, consider closing costs when purchasing your first home:

  • Closing costs can run 2-5% of the loan amount.

  • These costs include the fees associated with setting up your loan, such as your credit report, the home appraisal, lender fees, and title fees.

  • You should budget for at least 3-4% of the loan amount in cash, in addition to your down payment.

 

For example, say you’re buying a home with a sales price of $200,000 and plan to make a 5% down payment. You should include approximately 3% for closing costs in your estimate to ensure you have enough to cover your total out-of-pocket cost:

  • Home price: $200,000

  • 5% down payment: $10,000

  • Loan amount: $190,000

  • 3% for closing costs: $6,000

  • Total savings needed: $16,000

 

*This information is for educational purposes only.

 

Let me know in the comments which personal finance topic you want to learn about next!

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