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How Much down Payment Do You Need to Purchase a Home?

How much money do you really need for a down payment on a home? I’ll go over a few different options today.

If you want to buy a home, how much money do you need for your down payment?

Most lenders would love to see you put the standard 20% down for a conventional loan. Why? First of all, you won’t have to pay mortgage insurance. Secondly, you will be less of a risk. You are more likely to make your mortgage payments because you have equity in your home. Finally, putting 20% down helps you qualify for a bigger purchase.

That said, there are a few things to consider.

Recently, the National Association of Realtors revealed statistics from April to June of 2017 that found that 73% of all first-time homebuyers put less than 20% down; 61% of those buyers put less than 6% down.

Here in Southern California, which includes Orange County, L.A., and the Coachella Valley, prices are appreciating and interest rates are low overall. The market is really taking off, although the desert is slowing down a little bit. Home prices have appreciated quite a bit over the past eight and a half years since the bottom of the market.

Buyers are tired of renting. They know that long-term investments mean long-term gains. Real estate is a great way to build your portfolio and start building your wealth. In fact, 95% of all people who become millionaires got there through homeownership.

There are a few benefits to putting 20% down on a conventional home loan.

A lot of people may say that renting is the way to go. Renting is fine if you are moving around a lot or have a transient job that requires you to go from location to location. If you have established a family or have a great career in the area, then why are you renting? Why are you spending $2,000 to $4,000 and not gaining anything from it?

You may have a great place to live, but the reality is you are not benefiting from any of the mortgage interest deductions or appreciation that homeowners do. If the landlord decides to sell your home because the market is improving, then you have to move again, which costs you time and money.

So, what are the loan limits? 

FHA loans allow you to put 3.5% down. If you are looking to buy a $500,000 home in Orange County, you would need $17,500 down. If you were looking at the same home but needed to put 20% down for a conventional loan, you would need $100,000 for your down payment.

You can also get a conventional loan with a 5%, 10%, or 15% down payment. If you qualify for a VA loan, you can purchase a home with no money down.

If you would like to talk more in depth about which options are available to you, give us a call or send us an email. You can also get pre-approved by our preferred lender on our website.

So, if you have any questions, give us a call or send us an email. We would be happy to help you!