How Much Money Will You Need to Put Down on a House? 

One of the top priorities when buying a house is having enough cash on hand to meet the down payment requirement. Understanding how down payments work can help a future homebuyer be as prepared as possible. 

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What Is a Down Payment?

A down payment is the initial payment made when buying a house, and it signifies someone’s investment in the property. There are a few factors home buyers should consider when deciding how much to put down on a home:

  • The minimum down payment requirement for your loan type—for example, a conventional loan will require at least 3% whereas a Federal Housing Administration (FHA) loan requires a minimum down payment of 3.5%.
  • The amount you have in savings
  • The condition of your new home and how much you need to spend on repairs
  • How close you are to retirement
  • Your total debts (including credit card debt, student loans and auto loans)


How Much Should I Put Down for a Down Payment?

Typically, a down payment ranges from 3% to 20% of the home's purchase price. If a house is worth $350,000, for example, a down payment would range between $10,500 to $70,000. Note, closing costs, which are paid when the home-purchasing process is completed, are separate from your down payment, so you will want to factor those into your decision of how much you can afford to put down up front.

Making a larger down payment can lower your interest rate, and it may also lead to benefits such as lower monthly payments and potentially avoiding private mortgage insurance (PMI). Making a smaller down payment can free up funds for other investments or financial goals. It can also make homeownership more accessible. However, it's important to consider the impact of a lower down payment. Making a smaller down payment could mean higher monthly payments, the need to pay for PMI, and potentially paying more interest in the long run.


What Funds Can I Use as a Down Payment?

Usually, sources of funds for a down payment include personal savings, gifts from family members, proceeds from the sale of assets, and down payment assistance programs. Using money from gifts may depend on the loan you are seeking. For example, if you are applying for an FHA loan, the gift funds can come from a family member, employer, or charitable organization. However, if you are applying for a conventional loan, the requirements are stricter, and the gift funds usually need to come from a family member. It's important to check with your lender to understand the specific guidelines for using gift funds for a down payment based on the type of loan you are applying for.


How Can I Save for a Down Payment?

Saving for a down payment can be a challenging but rewarding process. Here are some tips to help you save effectively:

  • Set a Savings Goal: Determine how much money you want to save for your down payment and set a timeline for achieving this goal.
  • Cut Unnecessary Expenses: Identify areas where you can trim your spending to allocate more money toward your down payment fund.
  • Explore Down Payment Assistance Programs: Research potential assistance programs offered by federal, state, or local governments to help with your down payment.
  • Open a Separate Savings Account: Consider opening a dedicated savings account for your down payment to prevent the funds from being mixed with your regular spending money.
  • Automate Your Savings: Set up automatic transfers from your checking account to your down payment savings account to ensure consistent contributions.

Credit Union 1’s mortgage calculator can help you understand how the amount of your down payment can impact your monthly payments. When you apply for a mortgage with Credit Union 1—online, over the phone, or at a local branch—our team members will be with you every step of the way.

 

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