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How much do I need for a down payment?

A traditional down payment is 20% of the purchase price. On a $200,000 home, this means the down payment would be $40,000. With a 20% down payment, mortgage lenders will not require any additional mortgage insurance or charge additional premiums in order to approve the loan. If you are able to put 20 percent down, you will get the lowest costs and fees associated with a mortgage loan.

You might find this to be the biggest challenge you face when getting a mortgage.  If so, don’t worry, there have been many programs created to help a homebuyer that may have a smaller down payment. 

Government Programs
VA loans are available to military veterans and allow home purchases with as low as a zero down payment. FHA-insured loans require a minimum down payment of 3.5% of the purchase price. On a $200,000 home, this would be a down payment of $7,000 – a dramatic difference from a 20% down payment of $40,000. 

VA loans have a funding fee of 2.15% of the loan amount if the down payment is less than 5% of the purchase and 1.5% if the down payment is 5% - 10%. FHA loans charge a mortgage insurance premium of 2.25% and an annual insurance premium that is added to the monthly payment. The VA funding fee and the FHA upfront premiums can be rolled into the mortgage amount.  These additional fees help the lender offset any additional risk when funding a mortgage with a small down payment.  When the fees are amortized over the full term of the loan it may end up being a minimal added cost for you to justify or feel comfortable moving forward with the mortgage. 

Conventional Mortgages
You can still get a conventional mortgage with less than the traditional 20%  down payment through the use of private mortgage insurance (PMI).  PMI allows a home purchase with as little as 3% - 5% percent down, or $6,000 to $10,000 on a $200,000 home.  The rate for PMI will be based on the amount of the down payment and your credit rating.   If you can afford a down payment in the 5% -10% range, you should compare FHA and conventional loans to find the lowest cost.

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