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Down Payment – How Much Is Enough?

July 28, 2014
From Loan Officer Shellie Sexton

From Loan Officer Shellie Sexton

One of the consequences of the housing fallout from the mid 2000s has been a tightening of mortgage underwriting guidelines that make loan approval a little more difficult. However, according to new research from Freddie Mac, it’s not as difficult as some homebuyers think, at least when it comes to the down payment.

Apparently, the headlines trumpeting stricter lending guidelines have gotten the message across, but in the case of down payments, it’s not totally accurate. In a survey of renters and non-homeowners, 39 percent thought they needed at least 15% down to buy a home, and just 28% of the respondents thought they would qualify for a mortgage.

However, the truth is that lower down payments are actually on the rise. Since 2009, Freddie Mac has quadrupled its purchase of loans with a 10 percent or less down payment, and one in five borrowers who take out a conforming mortgage have a down payment of 10 percent or less. The biggest determining factor for how much of a down payment will be needed is the borrower’s financial health.  Those with a good credit history will qualify for mortgage terms with down payments as low as 5%.   FHA loans go as low as 3.5% down. USDA rural loans offer zero down payment options, (and you might be surprised at what qualifies as rural housing!). There are also ways to be gifted part of the down payment from a family member or other party, so the lack of a large down payment shouldn’t hold back most home buyers… if they know the facts.

One caveat– private mortgage insurance is required on all loans that have less than 20% down, and the premium is added to the monthly mortgage payment.

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