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
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 mortgage lenders require mandatory minimum down payment requirement on home purchase.
- Depending on the mortgage loan program, a down payment is required and 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 needs to be sourced in order to be counted and used towards the down payment verification of deposit.
Why Do Mortgage Lenders Require Down Payment On Home Purchase?
The reason down payment is required on home purchase loans is because the mortgage 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 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 on your home.
- Mortgage lenders consider large down payments as compensating factors where it is a positive factor and shows strength on the mortgage loan borrower.
- The large the down payment a mortgage loan borrower puts down on a home purchase, the less riskier the borrower is and the lower their mortgage rates ares.
- All mortgage loan 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 where 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 a FHA Loan with credit scores between 500 FICO and 579 FICO with a minimum of 10% down payment.
- There are maximum FHA loan limits, $271,050, unless the subject property is located in a high cost area.
- Maximum FHA loan limits in high cost areas in California is $625,500 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 10% down payment jumbo mortgage loans for jumbo mortgage loan borrowers with credit scores of 740 FICO or greater. There are also 15% down payment mortgage loan programs as well.