How much of a down payment will I need to buy a home?

A down payment of 20 percent has been the benchmark for conventional financing, but today, many options are available, some requiring as little as 3.5 percent down. If you qualify for FHA financing you would only be required a downpayment minimum of 3.5 percent of the purchase price to be of your own money. FHA insured home buyers are also required to pay MIP, or Mortgage Insurance Premium coverage, the amount which would be determined by the lender. For buyers who qualify for conventional financing but can’t handle the high down payment requirements, lenders offer similar financing with PMI, or Private Mortgage Insurance. Designed to protect the lender against default by the borrower, PMI allows you to obtain traditional financing with a down payment significantly lower than the standard 20 percent. PMI is usually required for loans in which the down payment is less than 20 percent of the sales price or, in a refinancing, when the amount financed is greater than 80 percent of the appraised value. By using PMI, you may be able to get a fixed rate or adjustable rate mortgage by putting as little as 5 percent down.

As with an FHA-insured loan, you must pay premiums for MIP, or Mortgage Insurance Premium coverage, the amount of which are determined by the lender. Moreover, MIP premiums are often lower than FHA insurance, and may be paid as part of your monthly mortgage payment, in annual installments, or in a lump sum at the time you obtain the loan. There are many other loan structures such as “piggy back” financing or “all-in-one” loans that may allow you to avoid paying PMI.  These loan structures may also allow you to receive additional tax benefits that PMI does not offer.   We can help you determine which down payment option is right for you and your budget.