Down Payments in Conventional and FHA Loans

A common question from home buyers, particularly first-timers, is: “How much do I have to put down to buy a house?” The answer: It depends on other factors.

The most important of those factors will be your credit, followed by income.

Conventional Loans 

These mortgages are loans obtained through Fannie Mae or Freddie Mac. If you have really good credit, you may be looking at a minimum down payment of 3%.

This is definitely something that first-time home buyers should be looking into when they start the financing process. With a down payment this low, you will require mortgage insurance, which, when certain conditions are met sometime in the future, can be removed.

Also, ask your mortgage professional about the “HomeReady” mortgage program, obtained through Fannie Mae. This program caters to low-to-moderate-income borrowers, and those purchasing in lower income areas.

FHA Loans

The minimum down payment with FHA programs is 3.5%. This program is ideal for borrowers whose credit scores may be on the low side.

While FHA is good for people who may be unable to qualify for conventional financing through Fannie Mae or Freddie Mac, the challenge here is that these loans are generally more expensive to own.

This is due to the fact that you will be required to have two kinds of mortgage insurance, and, unlike in conventional mortgages, the mortgage insurance will be in place for the life of the loan.

Other cash outlays in addition to down payments

Keep in mind that for both of the loan types listed above, you can expect to have other outlays of cash associated with the purchase, including closing costs and some type of escrow account.

You will still be able to get seller credits to help you with these other outlays. But note: Seller credits cannot be used to help you with your down payment.

Fall Can Be a Great Time to Start Your Home Search

Driven by a possible need to change schools as a result of a move, many parents prefer to shop for a new family home during the summer months.

But fall can be a great time to buy if you’re looking for a deal – particularly in your current neighborhood, where changing schools may not be an issue.

Motivated sellers – such as those located in areas that are expected to see inclement weather during the winter months – are probably considering ways of encouraging buyers to extend their home search into the fall.

The thought of sitting on an unsold home until the spring market comes along can be a compelling reason for these sellers to explore their options.

This presents an opportunity to those who are prepared to buy a home at this time. One of the benefits of looking off-season is the possibility of being able to negotiate a better deal with a seller who is prepared to consider it.

Therefore you, as a potential buyer, may want to consider your options as well.

Start by talking to your mortgage professional. He or she will run your credit to see if you need to improve your credit score before starting your home search. And a discussion about income and assets will help you discover what you can afford in a home.