When looking to prequalify for a home purchase, often the first question many clients have is, how much of a down payment do I need? The answer is, it depends.
The amount of your down payment will hinge primarily on two factors. What will be the occupancy of the home (primary home, secondary home or investment home) and what type of loan program will you be using.
As always, these are just basic guidelines and standard qualification requirements apply, but these numbers provide minimum down payments for all of the basic property and loan types.
Primary Residence:
If you intend to live in a home as primary residence, the following minimum down payment minimum requirements will apply.
Conventional Loans: A 3% minimum down payment is required is for all first time homebuyers and potentially for non-homebuyers who fit the Fannie Mae Home Ready standards (see our article on this program). All other home buyers require a 5% minimum down payment.
In addition, gift funds from a family member, are allowable for the entire down payment on this program.
And with less than a 20% down payment, mortgage insurance will be applicable, but will vary, based on the exact percentage of down payment. For example, mortgage insurance will be less with a 15% down payment, than a 10% down payment.
FHA Loans: A 3.5% minimum down payment is required for the purchase of a new primary home using an FHA loan.
Gift funds from a family member are allowable for the entire down payment and FHA home loans can only be used to purchase primary residence.
In addition, mortgage insurance will be applicable and vary based on the down payment, but all FHA loans have mortgage insurance, regardless of down payment.
VA Loans: There is no minimum down payment required to purchase a home using a VA loan.
VA loans also can only be used to purchase a primary residence.
On VA loans there is no monthly mortgage insurance, but for those Veterans and Active Duty Military that do not have a VA disability rating, there is a VA funding fee that needs to be paid at loan closing or rolled into the loan. In the cases where this is applicable, the funding fee is reduced with a 5% down payment and further reduced with a 10% down payment.
Jumbo Loans: For a primary residence, you may put as little as a 5% down payment when using a jumbo home loan.
However, as guidelines are a little more restrictive on Jumbo loans, the terms of the loan will be better with every 5% additional you make in a down payment in down payment (10%, 15%, 20%, etc.)
There is not mortgage insurance on Jumbo home loans.
Secondary/Vacation Homes:
A secondary or vacation home is a property in a different metropolitan area from a primary residence that someone owns for primarily their own personal use and spends less than 50% of the year living at this property. The most basic form of this, would be a summer or winter home in a different than one person’s primary home.
Conventional Loans: A 10% minimum down payment is required for the purchase of a secondary or vacation home.
The interest rate on on a secondary or vacation home will otherwise be priced almost identically to a primary home conventional mortgage. However, mortgage insurance costs will be slightly higher on secondary homes as opposed to primary homes.
Jumbo Home Loans: Guidelines vary with Jumbo home loans, but in general, expect to put at least a 15% down payment on a Jumbo home loan, for the purchase of a secondary home. Again, as your down payment increases, the interest rate will decrease.
There is not mortgage insurance on Jumbo home loans.
Rental or Investment Homes:
A rental or investment home is a property whose primary use is that of being rented out or for investment purposes.
In addition, if you own a primary home in the same metropolitan area and purchase a secondary home in that same area, it will automatically be classified as an investment property, unless you intend to occupy the new home and vacate the prior home.
Conventional Loans: A 15% minimum down payment is required for the purchase of a rental or investment home. The mortgage loan on a rental or investment home will also generally have a slightly higher interest rate that a primary or secondary home.
Jumbo Home Loans: Guidelines vary with Jumbo home loans, but in general, expect to put at least a 20% down payment on a Jumbo home loan, for the purchase of an investment home. Again, as your down payment increases, the interest rate will decrease.
There is not mortgage insurance on Jumbo home loans.
As always, everyone’s situation is unique and to properly look into your specific situation, make sure and consult with a licensed local lender such as Strategic Mortgage.
For more information on current home loan programs and options for existing and potential home owners, please contact Bill Kamboukos of Strategic Mortgage at (480) 219-3682 or by emailing: bill@strategicmtgaz.com or online at www.strategicmtgaz.com
Strategic Mortgage, LLC – AZBK#0909514 - NMLS#158804 - Equal Housing Lender
Vasilios Kamboukos – NMLS#160440
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