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How Much Down Payment Should I Have as a First-Time Home Buyer

By Ben Shepardson | January 11, 2023
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According to the PEW Research Center, the fourth quarter of 2020 reported 82.8 million owner-occupied homes in the U.S. Compared to 2019, this was an estimated 2.1 million increase.

First-time home buyers typically wonder about the average down payment amount and whether or not the American dream of owning real estate is attainable. Luckily, there are various loans available, each with different down payment requirements. These loans make it easier for people to purchase homes, leaving renting behind.

If you're interested in learning more about the home-buying process and what you can expect to pay, then be sure to keep reading for information every home buyer and owner needs to know.

Understanding Down Payments

Anyone not purchasing property with cash requires financing. Banks might loan you the complete amount with 100% financing.

However, the majority of mortgage loans require that you come up with a down payment for your property. For example, if you purchase a home that costs $200,00 and put down 10%, you'll need to come up with $20,000. You would finance the other 80%.

Paige Schulte Realtor and Digital Marketer says: Buyers should plan on saving funds for closing costs (around 2-3% of purchase price) plus a downpayment. This will all depend on the type of loan program you are looking at and what rate you want. First-time home buyers can put anywhere from 3%-20%+ down, the average first-time home buyer puts down 7%, 5% being popular among first-time homebuyers. There are common tiers 3%, 5%, 10%, and 20% but you can choose the exact amount in dollar form as well and it can be a weird number like 12.4%There are programs where you can put ZERO down if they are using a program like a VA loan or down payment assistance loan.

Average Down Payment Amount for First-Time Home Buyers

It's a common misconception that you must put 20% down on your first home. However, some loans only require you to put down 6% on your first home.

Depending on your credit score and whether or not you're purchasing in an HOA, you may be able to put down even less. If you have a good credit score, you may be able to put down 3%. If you purchase a $200,000 home, this would be a $6,000 down payment.

These low down payments make it possible for first-time home buyers to purchase houses, foregoing rent payments in favor of owning property.

However, you need to understand that if you put less than 20% down on your home, you'll have to pay PMI insurance.

PMI Insurance

Private Mortgage Insurance (PMI) protects your lender should you stop making payments on your loan. PMI is typically paid as a monthly premium.

If you find a lender that waives PMI insurance, you may find your rates are higher. Should you put 20% down on a conventional loan, you won't have to worry about PMI insurance, so it may be best to save for your down payment.

Closing Costs

When saving for your new home, you also need to calculate in closing costs. They're separate from your down payment, and cover everything from running your credit report to your appraisal. They also cover title fees.

You should estimate closing costs averaging about 2% to 5% of your total loan amount. On average, 5% closing costs are more likely to come with small loans.

To be on the safe side, budget 3% to 4% for your closing costs in addition to your down payment.

If you purchase a $200,000 home and put 20% down, your loan will be $180,000. This means your closing costs could be $3,600 to $9,000.

Down Payments Based on Loan Types

It's common for your loan type to dictate how much of a down payment you're responsible for. Here are some common loans and the average down payment amount required for each.

FHA Loan

FHA loans are insured by the Federal Housing Administration. This type of mortgage is backed by the government and requires a lower minimum credit score. They also require lower down payments.

They're popular among first-time home buyers since they have lower requirements. These loans are underwritten by third-party mortgage lenders.

On average, you can expect to put 3.5% down with an FHA loan.

FHA loans are common among first-time buyers since the credit score requirements are less than other loans. This means that you need a credit score of at least 580. You may even find a lender who will let you purchase a home with a credit score as low as 500 if you can put 10% down.

Additionally, FHA loans are considered among the friendliest for first time home buyers. However, you have to purchase a condo or single-family home that meets HUD (Federal Department of Housing and Urban Development) standards.

Remember that FHA loans require you to have MIP (mortgage insurance premiums) for the entire life of the loan, and you have to borrow with FHA limits.

Conventional 97 Loan

Conventional 97 loans allow you to borrow as much as 97% of your home's value. This means your down payment is only 3%. These loans are good for anyone with a fairly good credit score, as an alternative to FHA loans.

Freddie Mac and Fannie Mae both back Conventional 97 loans. You need a credit score of at least 620. You can use gift funds with this type of loan (explained in detail shortly).

Conventional Loan

Conventional loans aren't guaranteed or insured by the government. You typically need a 5% down payment for these loans.

These loan types typically focus on credit scores and have specific down payment requirements. Here's a breakdown: Credit Score

Although it's possible to secure a conventional loan with a credit score of 620, it may be too low. Ideally, you need a credit score of 660 or higher. Down Payment

As mentioned, your down payment may be around 5%. However, conventional loans might allow you to put 3% down, while other lenders offer 100% financing, although it's less common.

Remember that anything less than 20% down requires PMI insurance in most instances. Loan Amounts

For a conforming conventional loan, you can expect to borrow close to $650,000 for a single-family house. If you live in a more expensive area, you may be able to get a loan for roughly $970,000. Loans larger than this require a jumbo loan. Loan Terms

On average, conventional loan terms are 30 years. However, you may qualify for a 15 or 20-year loan if you're looking to pay your loan off faster. Your payments will be higher, but you'll pay less interest in the long run. Interest Rates

For a conventional loan, you can expect a fixed-rate or an adjustable-rate loan. Remember that your interest rate correlates to your overall credit history and your current credit score. The higher your credit score is, the less interest you'll pay.


USDA loans offer 0% as a down payment or 100% financing. These mortgages are eligible for home buyers in rural areas and are issued through the USDA loan program. These loans are ideal for anyone deemed low-income and looking to purchase in less populated suburban neighborhoods across the country.

This program is also referred to as the USDA Rural Development Guaranteed Housing Loan Program. It was instituted by the United States Department of Agriculture.

A "less populated" area is one that has fewer than 20,000 residents. Keep in mind that USDA loans limit income. This means that you can make more than 115% of whatever your local median income is. So if you're 15% above the median, you won't qualify for this type of loan.

If you qualify for a USDA loan, you'll find their mortgage rates are usually as low as V.A. mortgage rates. Even better, USDA loans tend to have cheaper mortgage insurance when compared to FHA loans.

V.A. Loan

VA loans are for veterans of the Armed Services as well as U.S. military members. They offer 0% down payments. These loans are provided by various private lenders. This included mortgage companies and banks.

V.A. loans guarantee a part of the loan, so the lender can provide you with better terms that work in your favor.

Additionally, VA Home Loans are provided by private lenders. This includes mortgage companies and banks. V.A. guarantees part of the loan, so the lender can provide you with more favorable terms.

It's important to remember that V.A. loans provide 100% financing and usually come with lower rates, making them ideal over other mortgage programs.

Since VA loans don't require any type of mortgage insurance, they're beneficial for first-time home buyers that quality. In short, these loans have an upfront funding fee you pay, whereas USDA and FHA loans have monthly mortgage insurance premiums.

Without the monthly mortgage insurance premium fees, you can save thousands with a V.A. loan.

Freddie Mac HomePossible Loan and HomeReady Loans

Freddie Mac's HomePossible loan and the HomeReady loan both require a 3% down. This affordable mortgage program is perfect for first time home buyers, as well as repeat buyers, and those looking to refinance their homes.

Both these loans are ideal for anyone who is lower-income or lives in a multigenerational household. If you qualify, you can access discounted mortgage rates and even use any income from boarders and other residents in your home to help meet your lender's specific household income requirements.

FHA 203(k) Renovation Loan

The FA 203(k) renovation loan allows first time home buyers and current homeowners the opportunity to purchase or refinance a home. This includes the cost of renovating their homes and is done through a single mortgage. This type of loan is also used to finance a home that needs renovations.

You can expect to pay a 3.5% down payment with this loan.

Reasons to Put Down a Smaller Down Payment

Although a smaller down payment may lead to PMI insurance, it's not forever. Once your mortgage balance is 78% of your original purchase price, your PMI insurance is automatically terminated.

If your goal is to become a homeowner as soon as possible, then you'd want to go with a smaller down payment, if it's all you can save.

Even better, smaller down payments allow you to keep money in an emergency fund, should you need home repairs. You can also use the extra money you save to renovate your home, purchase furniture, and more.

The sooner you purchase a home, the sooner you can start building equity. This is another reason why it might benefit you to purchase a home as soon as you have the minimum down payment required for your loan type.

Remember that the longer you wait to purchase a house, you run the risk of your dream home selling or the price increasing.

While a lower down payment might mean a slightly larger interest rate, you can always refinance down the road. You may be able to reduce your monthly payments by doing so.

Down Payment Assistance Programs

If coming up with a down payment seems daunting, you're not alone. Luckily, there are down payment assistance programs available for first time home buyers.

For example, you can apply for various grants and even low-interest second mortgages. These are called DPAs (down payment assistance programs). They can help you with your initial contribution towards your mortgage.

Over 2,500 DPAs exist nationwide. The vast majority of these programs are run by local governments and nonprofits. If you're a qualified buyer, you may receive $2,000 to $39,000 towards a down payment and closing costs.

Gift Funds

Another option for making your down payment requirements is utilizing gift funds. If, for example, your parents gifted you the 3.5% needed for an FHA loan, you might be able to use it with your first time buyer program.

The Freddie Mac Home Possible Loan and the Conventional 97 Loan both allow you to use a down payment that came from gift funds.

These gift funds might come from your parents, family, friends, or an employer, for instance.

Remember to carefully document these gift funds as proof of where they came from. Your mortgage lender will need to see that the money is from a verifiable source.

Save for Your Down Payment Today

While a down payment of 20% or more waives any type of PMI insurance, there are reasons to purchase a home with much less down. Consider your credit score, military status, and income status when applying for a loan. Homeownership allows you to build equity in real estate and is always a great investment.

Realty Biz News is your one-stop shop for all your real estate information. Connect with us to find a real estate agent or broker near you.

Ben Shepardson is a Realty Biz News Contributing Writer and has a long track record of success in online marketing and web development. While pursuing a bachelor’s degree in Computer Information Systems, he worked doing enterprise-level SEO and started an online business offering web development services to small business customers.
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