Need to Make a Down Payment on a Home Purchase? What You Need to Know

For many potential home buyers, the down payment is the biggest obstacle standing in the way of buying a home. Without money for a down payment, many home buyers assume they would not be able to make a purchase. However, this is not always the case, as some home loans do not require a down payment. Other home loans require significantly less than the 20% that a conventional loan may require. If you're a home buyer who is having trouble saving the money to buy a home, here's what you need to know.

For informational purposes only. Always consult with a licensed mortgage or home loan professional before proceeding with any real estate transaction.

How Much Is a Down Payment On a House?

Many conventional loans require homeowners to put down 20% of the purchase price in order to borrow money to pay for a house. Conventional loans that allow home buyers to put down less than 20% may require the home buyer to pay mortgage insurance on the loan. Mortgage insurance protects the lender in the event that the borrower defaults on their mortgage. This monthly expense can add hundreds of dollars to the mortgage payment, and for some people, can make buying a home too expensive.

Fortunately, some loans require far less than a 20% down payment. FHA loans, which are backed by the Federal Housing Administration, require the home buyer to put down 3.5%. The home buyer must also pay for mortgage insurance, but FHA loans have low interest rates, and with less money down, many home buyers find FHA loans to be affordable.

Some loans, like VA loans and USDA loans, require no money down at all. In fact, people who buy a home with a VA loan don't have to pay for mortgage insurance premiums, either.

When Is the Down Payment Due?

When a home buyer makes an offer on a home and the seller accepts the offer, the buyer must put down a sum of money often referred to as earnest money. This amount is held in an escrow account until the deal closes, at which time it may be rolled over into the down payment. The remainder of the down payment is made when escrow closes.

I Don't Have Enough Money for a Down Payment, Can I Borrow It?

Some home buyers can borrow money from accounts where they have stashed money for a future date. For example, some home buyers are able to borrow money from their 401K in order to make a down payment.

If you would like to buy a home and don't have money sitting in an account for the down payment, talk to a financial advisor. Your financial advisor can help you sort through your savings accounts and retirement funds to determine whether you can borrow from yourself in order to make a down payment.

Want to Buy a Home? Work With a Real Estate Professional

If you're a home buyer who would like to purchase a home, you're going to need help from a real estate professional. Your real estate agent can give you advice and help negotiate a price you can afford. This is especially important if you're buying a home on a budget, because the less expensive the house, the less your down payment and monthly mortgage payment will be.

For informational purposes only. Always consult with a licensed mortgage or home loan professional before proceeding with any real estate transaction.