Get the Low-Down on Down Payments

A happy family that chose a home loan that best suits their needs and budget. Whether you’re considering building a brand-new home, rehabbing a mid-century treasure, or buying a historic downtown loft, you’ve probably realized there are two key things to consider—what you can afford as a monthly mortgage payment, and what you can afford to “put down” on your home as a down payment. Depending on your credit history, the type of home loan you qualify for, and the kind of property you’re buying, the required down payment can vary from 0% to 20%—a swing that can make a big difference in your investment.

The good news is that with an array of new home loan programs designed to make homeownership easier and more affordable, average down payments are at their lowest since 2012. Here’s a brief overview of the programs and down payment options:

Conventional home loans are fixed-rate or adjustable-rate loans offered by private lenders such as Cambria Mortgage. These loans require down payments that can vary from as little as 3% of the purchase price (with mortgage insurance or a second mortgage) to 20%.

FHA loans are insured by the Federal Housing Administration, a government agency within the U.S. Department of Housing and Urban Development (HUD). Depending on the borrower’s credit score, down payments can be as low as 3.5%, and can be a gift from a family member or a grant from a state or local down-payment assistance program. FHA requirements also include two mortgage insurance premiums: an upfront payment of 1.75% of the loan, which can be financed as part of that loan; and a second, recurring payment called the annual premium, even though it’s paid monthly. The annual premium varies based on the initial loan-to-value (LTV) ratio, the amount borrowed, and the length of the loan.

Backed by the Department of Veterans Affairs, VA loans don’t require a down payment or mortgage insurance. Other benefits of these loans include low closing costs, negotiable interest rates, and no maximum loan amounts. These loans are available to veterans, active-duty personnel, reservists, members of the National Guard, and eligible surviving spouses.

USDA loans, also known as Section 502 loans, are the only zero-money-down programs available to borrowers who have not served in the military. Created by the United States Department of Agriculture to help improve the economy in rural areas, the program features competitive mortgage rates, lenient eligibility requirements, and no down payments. USDA loans are also available to people who live in eligible suburban/metro areas and meet certain guidelines for household income, construction standards, and cost limits.

State bond loans are sponsored by state and local Housing Finance Agencies (HFA). The loans are available to first-time homebuyers who meet household income guidelines, have not owned and occupied a home in the previous three years, and occupy the home as a primary residence. In Minnesota, borrowers who qualify for a Minnesota Housing first-mortgage loan can also borrow up to $7,500 for down payment and closing costs.

Britt Peltola

Britt Peltola

Marketing Director

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