I still keep hearing people say that you need 20% down to buy a
home and you absolutely do not.
The minimum down payment is actually a lot less than 20%.
And in this video, I'm going to cover 12 minimum down payments on different
types of loans, because saving for a down payment is tough, especially
as home prices continue to increase.
I keep hearing stories about people saving for years only for the price of a home.
To continue to go up and up and up sometimes over a hundred
thousand dollars in value.
And last year appreciation for home growth was around 17%.
So that means if you wanted to buy last year, this time, last year, the
medium home price was around $337,000.
And then the period of a year, the median home price skyrocketed up to $405,000.
That means for a minimum down payment on a conventional loan, you need an addition.
$2,000 more in down payment, or in other words, you need to save $168 a
month on top of your current savings for a down payment and closing costs,
just to keep up with home appreciation.
So I'm gonna walk you through 12 minimum down payments so you can
better understand different loans and then decide what you want to do to buy a home.
So the first tier is conventional loans.
Conventional loans are usually best for people who have lower debt compared
to the income that they have, and usually have a higher end credit score.
So 680 and higher is usually best.
However, the minimum can go down to 620.
So, the first one here is 3%.
So this is usually reserved for first-time buyers.
And a first time buyer, someone who has not been on the title two home in the
past three years now, first time buyers.
Conventional loans have two programs underneath them called
home ready and home possible.
And you can use these if you're not a first time home buyer, if you're
under an income limit in your area.
So you can talk to a loan officer a little bit more if you qualify for those.
But 3% down is the minimum that you need as a first-time home buyer.
On a conventional loan, far less than the 20% that most people talk about.
The second is 5% down.
So if you've already owned a home, then you're likely going
to have 5% as a minimum down payment on a conventional loan.
You get disqualified from the first time home buyer label and can't use the 3%.
Down.
Now, if you are a first-time buyer, you might consider looking at both a 3%
down payment and a 5% down payment and get quotes from loan officers on both.
Because often you can get a lower interest rate on 5% down than you can on 3%.
That's why it's good to compare.
And then finally, 20% down.
Why does everyone talk about 20% down?
Well, 20% down, it used to be what was very common as a minimum years ago.
It's not really a thing anymore.
What 20% down does now is it eliminates the need for mortgage insurance,
PMI, Private Mortgage Insurance.
So basically.
If you have a down payment, less than 20%, the lender is going to
charge you a monthly fee called Private Mortgage Insurance, which
basically protects the lender.
In the case that you default on a loan.
It's really not that expensive.
It's usually probably going to be in between a 60 to $120 per
month, depending on your loan size, compared to the rest of the.
It is not terrible, especially for the ability to not have to put 20% down.
Now I do have the full loan requirements for conventional loans in the description.
If you are interested in learning more about that, then we move on to FHA.
FHA is great for people who have a lot of debt compared to their income.
So what would be, what would be called a debt-to-income
ratio, a high debt-to-income ratio.
FHA is great for that.
Also great for if you have some credit challenges.
FHA actually changes the down payment depending on what your credit score is.
So there's two different segments here.
If you have a 580 credit score and higher, the minimum
down payment is 3.5% just to have percent higher than conventional.
If you have anywhere between a 500 to a 579 credit score, then
the minimum down payment is 10%.
FHA does require mortgage insurance for both of these times.
If you have 10% down, mortgage insurance does fall off after
11 years on an FHA loan.
And I also do have full loan requirements in the video description for this loan type as well.
VA has fantastic option for veterans and works well with all
different types of credit scores.
So you do have to have a certificate of eligibility to be able to
qualify for a VA loan, but the minimum down payment on VA is 0%.
There's no down payment required, no monthly mortgage insurance required.
However, there is what is called a funding fee.
Think of it like mortgage insurance, paid upfront and it's usually.
wrapped in included inside of the loan amount.
And I do have a full loan requirements video in the description as well.
Another one, USDA 0% down.
USDA is for what is called a rural area and more areas than you might think.
Actually qualify for this for a lot of people.
If they extend their commute by around 15 to 20 minutes, usually they
can be inside of a USDA area that's considered rural and you can do 0% down.
USDA tends to like 640 credit scores and higher.
However, there are lenders who will go to.
500 credit score on USDA.
And again, I do have the full loan requirements for this type of loan in the,
in the description and the, we get to Jumbo.
So all these loans that we just talked about, conventional FHA, VA, and USDA
all have loan limits except for VA.
And the loan limit is just basically a maximum loan that
the lender will give you.
So if you go above that limit, then you need to get into what
would be called a jumbo loan.
And jumbo loans are a little bit different because there's not as standard
guidelines or standard roles as there are for these other types of loans.
And so
the down payment minimum can really vary a lot between different lenders.
So you want to talk with different ones to see, but there are a lot of lenders who do
5% down as a minimum, and there are a lot of lenders who do 10% down as a minimum.
These tend to be the most common for jumbo loans.
However, again, there's not strict guidelines.
That all lenders follow on jumbo loans.
It's all going to be dependent on the specific lender that you're working with.
So if you want to find minimums for jumbo, if you're looking at a loan
size, that is a lot higher than what you can get with conventional, FHA, or
USDA, then you want to shop with lenders to find that minimum down payment.
The next is portfolio loans.
A lot of people aren't familiar with portfolio loans. Kind of in the
same way that jumbo loans don't have a certain standard, portfolio loans are the same.
and that they don't have one strict standard.
It varies lender to lender and portfolio just means that it's
a special type of program that usually is for a specific.
group of people.
So for instance, a lot of portfolio loans are what are called bank statement loans,
or they actually use bank statement deposits, and an average of those to
qualify you for a certain income, rather than things like pay stubs or W2's
or tax returns or something like that.
That's usually for self-employed.
Who write off a lot on their taxes.
And then their option is what's called a DSCR loan debt, service coverage ratio
loan, which basically is for investment properties where instead of underwriting
income or asking for somebody's a W2's tax returns, pay stubs, things like that.
They'll actually look at how much income does the property create compared
to how much is the monthly payment.
So those are portfolio loans, usually for a special case scenario.
And again, these are very lender to lender, but usually
you're going to run into
10% down as a minimum on certain programs for really well-qualified people,
higher credit scores, low debt to income ratios or 20% when you're getting it
into more of the investment type loans.
And then finally is down payment assistance.
And we're also going to increase, include any sort of grants in there, which we
would classify as down payment assistance.
And unfortunately, the answer is there is not one set.
There's all kinds of down payment assistance programs throughout the
U S the best way to figure these out is to search for your local housing
authority, either in your county or state, and they should direct you
to different programs and different down payment assistance programs.
We'll either offer a certain dollar amount of assistance towards down
payment and or closing costs or a percentage of the purchase price towards
the down payment or closing costs.
Just know that when you do run into down payment assistance programs,
you might run into some where you don't have to pay anything.
More than often, you will still likely need to bring some
money to the closing table, maybe just not the full down payment.
So for instance, I've seen it be very common where the down payment
assistance program might offer 2%, in down payment assistance.
And so on an FHA loan, if the three and a half percent is the total, you need to
bring 1.5% as the down payment, but all programs
are different.
So then that brings, the question, we know the minimum down payment,
but how's the minimum down payment actually impacts how much house you
can qualify for because of the larger down payment is the higher purchase
price you can actually qualify for.
So this is how we can explore that a little bit.
Okay.
So let's run through a quick example using this max purchase price calculator.
There's a link to this in the description.
If you want to try it.
So let's say we're using a minimum down payment on conventional loans
as a first-time buyer, 3% down.
And let's say we make $60,000 per year, and maybe we just have a credit
card with a minimum monthly payment of $150 a month, just for an example.
And let's say it's just a, maybe it's us.
And then maybe we have somebody on the loan with us and they make $30,000 a year.
So if we jump over to our dashboard, we could see what the estimated
maximum purchase price would be.
343, 349, based on what lenders would use to help you
look at debt-to-income ratios.
and this calculator explores that a little bit more.
So 343 is kind of our baseline right now.
Well, what happens then if we change this to, let's say 5% down, all
of a sudden that bumps it up to 348.
Okay. Nothing crazy.
But then let's take a look at what if we went to 1500.
378, 358.
So we can see how that down payment, the more that we put down actually starts
to increase our maximum purchase price.
So that might be something to consider.
However, you might be on the other end of saying, actually we just want to be
able to get into a home so that we can catch up with appreciation or that we
don't have to keep adding more and more monthly savings to be able to catch
up to the larger down payment needed.
If homes continue to appreciate at the same
Level.
So I know, it's frustrating to see home values, continuing to appreciate.
And you're saying like I have the savings, I'm trying to save as quickly
as I can, but it's difficult to keep up.
Really
the best thing to do is start exploring what loan programs
might work best for you.
Again, in the description, I have links to different loan
requirements to help you figure out which one is going to be best for you.
Start to see what the minimum down payment is and explore.
If that's an option that you want to take, maybe the minimum works for you,
or maybe you want to save or you're actually
comfortable with your ability to save, to catch up
with home values, appreciating.
And also at the same time, we don't know what appreciation
will look like next year.
We don't know what home values will do.
And so really it's going to be up to your risk level, what you're comfortable with,
but the best way to figure this out is the first understand all of the options
that are before you, and then make a decision.