Down Payment On House Purchase Requirements

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Down Payment On House Purchase Requirements

This BLOG On Down Payment On House Purchase Requirements Was UPDATED On December 4th, 2018

Down Payment On House Purchase is normally required with the exception of VA Loans and USDA Loans. There are two types of traditional mortgage loan programs:

  • Government Loans
  • Conventional Loans

Government Loans

Government Loans are residential mortgage loans limited to owner occupant properties. It is originated and funded by banks and private lenders but the home loan is guaranteed by a government entity.

Here are the three government loan programs available:

Purpose Of Down Payment On Home Purchase

Down Payment On Home Purchase shows that the home buyer has skin in the game.

  • The more down payment buyers put down, the less likely they are to default on their home loan under the eyes of all lenders
  • The less down payment on home purchase, the more risk lenders normally have so rates are higher
  • However, government loans have lower interest rates and low and/or no down payment requirements
  • This is because the government insures and guarantees banks and lenders
  • Government agencies insures lenders in the event home buyers were to default on their home loan
  • Most home buyers realize that they must put a large down payment on house purchase for them to get a mortgage loan

Down Payment On House Purchase Requirements

The purpose of a down payment on home purchase required from lenders is the skin in the game rule.
  • Studies show that homeowners are less likely to default on their mortgages if they have their own money at stake instead of financing 100%
  • Homeowners who have their hard earned money invested instead of having it financed 100% of it have less of a tendency of walking when things go rough financially with them
  • The borrowers who have down payments on a home purchase tend to repay the home loan until they either sell or pay off the loan since they have a financial investment in the home
  • Borrowers who walk away without paying or stops paying the mortgage loan will face foreclosure:
    • Ends up losing the down payment as well as the equity in the house

What Determines Mortgage Rates

The following are factors that determine mortgage interest rates:

  • Down Payment on Conventional Loans
  • Credit Scores
  • Type Of Property
The more down payment home buyer puts down on a home purchase, the more skin in the game from the borrower where lenders consider it less riskier borrowers which means lower mortgage rates.
  • A 20% down payment mortgage loan is the most traditional mortgage loan  
  • With a 20% down payment, there is no private mortgage insurance required on conventional loans

Private Mortgage Insurance Requirements

Lenders of Conventional Loans feel very secure with mortgage loan borrowers that put a 20% down payment on a home purchase. With government loans, borrowers can get low rates without larger down payments. This is because government loans are insured and guaranteed by government in the event borrowers default on their government insured mortgage loans.
  • On a conventional mortgage loan, the minimum down payment required is 5%
  • First time home buyers can put 3% down payment on conventional loans
  • First time home buyers is defined as any home buyers who had no ownership interest in a home for the past 3 years
  • For a FHA insured mortgage loan, the minimum down payment required is 3.5%
  • There are no down payment requirements on VA and USDA Loans due to the government guarantee
  • For jumbo mortgage loans, the minimum down payment required is 20% to 25% depending on the borrowers credit scores and income
  • We do have 5% down payment Jumbo Mortgages available

Home Buyers who are interested in getting more information on this subject matter, feel free to contact us at 262-716-8151 or text us for faster response. Or email us at gcho@gustancho.com.

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