Down Payments: How Much Do You Really Need?

family signing contract

This is one of the very first questions most first time home buyers ask themselves, “How much do I need for a down payment?” Saving up for a down payment can be one of the biggest hurdles for buyers to overcome but there is still that prevailing myth that you need a 20 percent down payment but that’s simply not true. Different loan programs have different minimum down payment requirements and it’s even possible to get into a home with no down payment at all. Let’s take a look at different types of loan programs and what their guidelines say.

VA Loans

VA loans require nothing for a down payment. It’s a zero down program available to veterans of the armed forces, active duty personnel with at least 181 days of service, National Guard and Armed Forces Reserve members with at least six years of service and unremarried spouses of those who have died while in service or as a result of a service related injury. Not only do VA loans eliminate the need for a down payment there is no monthly mortgage insurance payment required, making homes even more affordable.

USDA Loans

USDA (United States Department of Agriculture) loans do not require a down payment. This program has been around for years in different forms and today provides a way for to finance homes located in rural and semi-rural areas. As long as the property is located in an area approved by the USDA, borrowers can apply for a USDA loan. USDA loans are also designed to those considered as “moderate” income. USDA loans limit the amount of household income to 115% of the median income for the area. If you want to see if a particular property is in an approved area or want more information about a USDA loan, give us a call and provide us with the property address.

FHA Loans

FHA loans ask for a down payment of only 3.5% of the sales price. There are no limitations regarding income limits, where the property is located or being in a particular class of borrowers. The FHA loan can be used by anyone. FHA loans are limited by the loan amount however and this amount can vary based upon location. FHA loan limits are set for each individual county. In West Palm Beach the current limit is $345,000 for a single family home and $450,800 for Naples.

Conventional Loans

Conventional loans are those underwritten to standards established by Fannie Mae and Freddie Mac and are the most popular loans issued in today’s marketplace, garnering nearly two-thirds of the market share for home loans. The minimum down payment for a conventional loan is 5.0% of the sales price of the home. Fannie Mae has a loan program designed for low to moderate income buyers that asks for a down payment as low as 3.0% of the sales price.

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