How Much Down Payment Do You Need to Buy Your First Home?

Many would-be homebuyers have found themselves waiting on the sidelines because they believe they don’t have enough saved for a down payment. Complicating matters are all the common misconceptions, often reinforced by unsolicited advice from family and friends.

One of the most prevalent myths is you need to save 20% of a home’s purchase price for a down payment before you can qualify for a mortgage. This used to be true, which is probably why it is one of the biggest misconceptions surrounding home buying. But the fact is, it no longer holds true–at least not for all buyers.

For example, if you qualify for a VA loan or if your income and the property qualifies for a USDA loan, you can qualify for a mortgage with zero down. You may be surprised to find that properties qualify for USDA loans are not limited to rural acreages and farms.

Even if you don’t qualify for a USDA or VA loan, you can still qualify for a home loan with less than 20% down. However, you will need to pay an additional fee as part of your monthly mortgage payment, called private mortgage insurance (PMI) or, in the case of FHA loans, a mortgage insurance premium (MIP). This fee is due to the additional risk taken on by the lender because you have considerably less skin in the game.

If you qualify for a Federal Housing Administration (FHA) loan, you can get pre-approved for a mortgage with as little as 3.5% down, if you meet the rest of the loan program’s qualifications. However, you will need to pay mortgage insurance for the life of the loan if you put less than 10% down. If you are able to put more than 10% down, you may be able to eliminate the extra mortgage insurance payment after 11 years. Of course, you can also get rid of mortgage insurance by refinancing with a conventional loan once you have built up some equity and improved your credit score.

There are conventional loan programs that will let you qualify for less than 20% down as well, but you will need to pay PMI. If you decide to go with a loan that requires PMI, talk to your loan officer about whether the PMI portion of your monthly mortgage can be removed once you have built up sufficient equity in your new home.

Before deciding to apply for a loan with less than 20% down, you should consider whether it would be better to pay an additional fee every month for the mortgage insurance or wait until you’ve saved a larger down payment. Your lender can provide you with estimates of what you can expect to pay.