- A down payment is the percentage of the purchase price of a piece of property that you need to pay yourself, while the bank offering you a loan covers the rest. The down payment you are expected to pay depends on the kind of property you are purchasing, the type of loan you are getting and your individual circumstances. Down payments typically range from three to 25 percent.
- The most common kind of loan when buying a house, which is the most encouraged, is a conventional loan or a normal loan--the kind most people will get if they go to their bank to ask about a home loan. With this kind of loan you are expected to have 20 percent of the value of the house, if it is going to be a primary residence, and the interest rate is usually at market rate or prime rate.
When buying investment properties or a second home, most banks will ask for 20 to 25 percent of the value of the house if you are seeking a conventional loan. You may also be asked to prove that you have enough savings to cover six months of payments.
The requirements for down payments have changed. Before the housing and economic crisis that began in Fall 2008, the down payment rules were not very strict. People bought homes for as little as zero down, with all kinds of creative financing options and sub-prime loans. They did not even have to have a good credit rating. Those kinds of loans no longer exist and are blamed as being partly responsible for the economic meltdown. - Government-backed loans like those from the FHA (Federal Housing Authority) and VA (Veterans Affairs) have different down-payment requirements. FHA requires three percent of the purchase price as a down payment for most first-time home buyers. Specific instructions apply to each state, so check the FHA website to see what is available where you live. FHA loans are insured by the federal government to assist lower income people in becoming homeowners.
The VA (Veterans Affairs) loan also has a very low down payment, sometimes as low as zero. This loan is available to veterans to assist them in purchasing homes. VA loans are guaranteed by the federal government. - There are down payment assistance programs that can be used when getting an FHA loan. These come from non-profit organizations that give grants to low income and minority would-be homeowners to help defray down payment and closing costs. The FHA approves several of these programs. See the link below and check with your mortgage broker to see which ones are available in your area.
Prior to July 2008, the FHA allowed seller-financed down payment assistance but that is no longer the case.
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