Average Down Payment on a House: What to Expect
Get the answers you need about the average down payment on a house. Learn what to expect and how to prepare. Read now for more information.
Making the Average Down Payment on a House: What to Expect
Buying a home is a major life decision and a major financial investment. One of the most daunting steps in the process is coming up with the down payment for your future home. Depending on your credit history and whether you choose to get a government-backed loan, the amount you'll need for your down payment could vary significantly. Here's what you need to know about making an average down payment on a house.
Average Down Payment for Conventional Loans
Conventional loan or “conforming” loans are the most popular and widely available type of loan on the market. These loans meet the standard requirements set by Fannie Mae and Freddie Mac. For conventional loans, lenders typically require at least a 5% down payment. As such, the average down payment for a conventional loan is 5% of the total purchase price of your home.
Requirements for Lower Down Payments
For some borrowers, it may be difficult to come up with the funds to cover a 5% down payment. If so, you may be able to get a loan with a lower down payment, but you will have to meet specific requirements. For example, a loan insured by the Federal Housing Administration (FHA) may require a 3% down payment, while a VA loan from the Department of Veterans Affairs requires no down payment at all.
Things to Consider When Making a Down Payment
When deciding how much to put down on a house, you should factor in what additional costs might be associated with your down payment. Depending on your loan type and state, you might need to pay an origination fee at closing. You may also be required to pay for private mortgage insurance (PMI) if you make a down payment of less than 20%. PMI can help protect your lender from major losses if you fail to make your loan payments, so it's important to factor it into your budget.
Paying Too Much for a Down Payment?
It can be tempting to put more money down if you have it, thinking that you'll get a better interest rate or qualify for a bigger loan. But in most cases, putting down too much money for a down payment can eventually leave you cash- and time-strapped. If you're able to afford a larger down payment and still maintain financial flexibility, it is possible that it'll help with the loan process. However, you need to make sure not to dip into your emergency funds to pay for your down payment, or you may be setting yourself up for financial failure.
Final Thoughts
Making the average down payment on a house is a big step in becoming a homeowner. Before making a decision on how much to put down, do your research. While you may be able to qualify for a loan with the minimum down payment, it's important to determine how much you can truly afford and make sure all additional costs associated with it are factored into the equation. Ultimately, making an informed decision is key to ensuring a successful home purchase.