What is the typical down payment on a house? This is a common question we receive from our readers. So we sent an email survey to 15 mortgage lenders across the United States, to get their input on the subject. We also asked if there were any new developments in this area for 2013. Eight of the lenders responded to our survey. Here’s what we learned.
As it turns out, the typical down payment will vary based on the lender, the loan program, and the borrower. These days, a typical down payment might range from 3.5% to 20%. You’ll see why these numbers are important in a moment.
FHA, Conventional, VA Loans and More
We should start by discussing the FHA loan, since it has become one of the most popular financing options for home buyers. The minimum allowable down payment for an FHA loan is 3.5%. This is lower than anything you’ll find on the conventional (non-government-insured) side of the market. This is what attracts so many borrowers to the FHA program in the first place.
So the typical down payment when buying a house with an FHA loan is 3.5%. (Note that the FHA requires borrowers to have credit scores of 580 or higher, in order to take advantage of this low-down payment option. Learn more.)
Conventional mortgage loans typically have down payments in the range of 5% to 20%. In 2013, many lenders are now leaning toward 10% as a minimum. A lot of lenders suffered major financial losses during the housing crisis, so they are now requiring more “skin in the game.” So the typical down payment to buy a house with conventional financing is 5% to 10%. Some borrowers choose to go as high as 20%, and you’ll see why later when we discuss mortgage insurance.
There are also a couple of scenarios where the borrower can get 100% financing from the lender. These are situations where no down payment is required at all. VA loans are one example. This financing program is limited to military service members and their families. When using a VA loan, a borrower can buy a house with no down payment whatsoever.
The federal government’s USDA/RD home-loan program is another example of 100% financing. These mortgages are limited to low-income borrowers in rural areas of the United States. These two financing programs typically offer 100% financing with no down payment needed to buy a house. Of course, they are limited to specific groups of borrowers, and are therefore exclusionary as well.
Jumbo mortgages and other nonconforming loans typically require down payments of 20%. A jumbo loan is one that exceeds the lending limits set forth by Fannie Mae and Freddie Mac. You’ll find a list of those limits on this page of Fannie Mae’s website.
Lower Down Payments Typically Require Mortgage Insurance
In the previous section, we talked about the typical down payments used when buying a house. You’ll recall there are certain scenarios where you can put down less than 20%. But if you do that, you will have to pay an additional expense known as mortgage insurance. This is true for FHA and conventional loans like.
All FHA borrowers have to pay for this extra insurance. In fact, the FHA recently raised their premiums to make up for financial losses stemming from the housing crisis. On the conventional side, borrowers who make down payments below 20% are typically required to pay for private mortgage insurance (PMI). This added cost can generally be “rolled into” the loan, which means it will increase the size of your monthly payments. So it’s something you need to consider. This is why borrowers with the financial means often choose to put down 20% – it takes mortgage insurance out of the equation completely.
Summary: This story answers the question, What is the typical or normal down payment on a house? As you can see, the requirements vary based on the mortgage lender, the type of loan being used, and the borrower’s financial situation. Borrowers typically put down anywhere between 3.5% and 20%. Certain government programs, such as VA and USDA, offer 100% financing. FHA loans typically require down payments of at least 3.5%. Conventional loans may require anywhere from 5% to 20%. Also keep in mind there are exceptions to many of these “rules.” So not all of this is written in stone.