Minimum Down Payment Requirement On Home Purchase

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What Is The Minimum Down Payment Requirement On Home Purchase?

This BLOG On Minimum Down Payment Requirement On Home Purchase Was Written By Gustan Cho NMLS 873293 And PUBLISHED On July 5th, 2019

One of the first most commonly asked questions by first time home buyers is what is the minimum down payment requirement on home purchase. How much money do I need to buy a home? With the exception of VA LOANS and USDA LOANS lenders require a mandatory minimum down payment requirement on home purchase.

  • Depending on the mortgage loan program, a down payment is required
  • The down payment needs to be seasoned in the borrower’s bank account for at least 60 days
  • FHA Loans permits that 100% of the down payment can be gifted by a family member and/or relative
  • However, the donor of the gift funds needs to sign a gift letter stating that the gift funds are only a gift and not a loan and does not need to be paid back
  • The donor needs to provide 30 days of bank statements showing that the gift funds have been seasoned
  • Any large or irregular deposits in the borrower’s bank accounts need to be sourced in order to be counted and used towards the down payment verification of deposit

Why Do Lenders Require Down Payment On Home Purchase?

The reason down payment is required on home purchase loans is because the lender wants the borrower to have skin in the game.

  • If you were to purchase a home with no money down and when things go wrong, it would be easy to walk away from the home
  • This is since you did not invest a single penny on the home purchase transaction
  • If you have invested part of your home earned money to put down on a home purchase, the chances are that you will do whatever you need to do not to lose your down payment and equity of your home
  • Lenders consider large down payments as compensating factors where it is a positive factor and shows strength by borrowers
  • The large the down payment a borrower puts down on a home purchase, the less risky the borrower is and the lower their mortgage rates are
  • All borrowers on conventional loans who put at least 20% down payment do not require private mortgage insurance
  • All FHA Loans require annual FHA Mortgage Insurance Premium for the term of the loan with the exception of 15-year fixed rate FHA Loans
  • With 15-year fixed rate FHA Loans, the  FHA mortgage insurance premium can be canceled after 11 years

Minimum Down Payment Requirement On Home Purchase On FHA Loans

FHA Loans is by far the most popular loans where borrowers with prior bad credit, prior bankruptcy, prior foreclosure, collection accounts, charge offs, and higher debt to income ratios can qualify.

  • FHA Loans require a minimum of 3.5% down payment on a home purchase mortgage loan as long as the mortgage loan applicant has a credit score of at least 580 FICO. 
  • You can qualify for an FHA Loan with credit scores between 500 and 579 FICO with a minimum of 10% down payment. 
  • There are maximum FHA loan limits, $314,827 unless the subject property is located in a high-cost area
  • Maximum FHA loan limits in high-cost areas in California is $727,525 for a one unit property
  • 2 to 4 units have higher maximum FHA loan limits.

Minimum Down Payment Requirement On Home Purchase On Conventional Loans

There are two down payment home purchase conventional loan programs for Conventional Loans.

  • First time home buyers or home buyers who did not own a home for the past three years can qualify for a conventional loan with a 3% down payment
  • Seasoned homeowners require a minimum 5% down payment on a home purchase
  • Minimum credit scores to qualify for a conventional loan is 620 FICO

Minimum Down Payment Requirement On Home Purchase On Jumbo Mortgages

Jumbo loans will require a 20% down payment.  However, we offer 5% to 10% down payment jumbo mortgage loans for borrowers with credit scores of 720 FICO or greater.  There are also 15% down payment mortgage loan programs as well. Non-QM Loans offered at Gustan Cho Associates have 10% to 20% down payment requirements. The down payment is dependent on credit scores and the type of property. There is no maximum loan limit on Non-QM Loans. There is no mortgage insurance required. For more information about the content of this article or other mortgage-related topics, please contact us at Gustan Cho Associates at 262-716-8151 or text us for faster response. Or email us at gcho@loancabin.com.

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