Questions Buyers Ask
How much money will I need for a down payment?
The down payment amount will vary considerably based on the type of mortgage you're applying for, your credit score, and whether you want to have the lowest possible interest rate on your mortgage. Ask a traditional lender that question and you'll probably be told you need 20% down. That's largely because the 20% down payment covers the mortgage insurance the lender requires. Lenders who meet Federal Housing Administration (FHA) requirements for credit score, may need only 3.5% down. From time to time, some lenders offer 1st-time home buyers mortgages that require as little as 1% down, as long as they have stellar credit scores and meet other guidelines regarding income, the age of home, and/or location of the home. According to the National Association of Realtors® (NAR) the 2021 average down payment for a home was 7%.
There are a couple of things to remember as a prospective home owner. First, buyers who can save a bigger down payment often get a slightly reduced interest rate on their mortgage. One-quarter or one-eighth of a percentage point doesn't seem like much, but that small difference could save you thousands over the course of a 30-year mortgage. Second, you will need cash for closing, for setting up your home, and for dealing with surprises that pop up. (Welcome to the world of the homeowner.) You don't want to put all your cash toward the down payment and then be strapped for cash to close or not be able to buy any furniture.