When buying a home, the down payment is the initial cash contribution applied to the purchase price. This amount is typically reflected as a percentage of the purchase price. For example, $15,000 for a $300,000 purchase would be a down payment of 5%. The remaining $285,000 is typically the amount financed with a home mortgage and has a loan-to-value (LTV) ratio of 95%. ($285,000/$300,000 = .95 = 95%)
What determines the minimum down payment?
The type of loan and property are significant factors when calculating the minimum down payment. Jumbo loans and loans for purchasing a second home typically require larger minimum down payments. Numerous factors influence minimum requirements for jumbo loans and second or investment properties. For those situations, contact a loan officer at E5 Home Loans for options. The focus of this article is the most common loan types, Conventional, FHA, VA, and USDA for a primary residence.
NOTE: This article reviews minimum initial investment requirements, but ultimately the buyer determines the down payment based on their comfort level. Buyers should consider:
- How much money they have in the bank
- If there are costly repairs or upgrades needed
- How much they are willing to finance to obtain a monthly payment in their budget
Read more on How Much Can I Afford?
Conventional loans allow for a down payment as low as 3% for first-time home buyers* purchasing a 1-unit home. If it’s not a first home purchase, requirements for a conventional loan depend on the loan type, home type, occupancy type, and buyer type. Fannie Mae and Freddie Mac set the guidelines for conventional loans. The following resources detail minimum down payments and maximum LTV ratios.
*First-time home buyer is defined as someone who has not owned a home in the past 3 years.
The minimum down payment for an FHA loan is 3.5% for 1–4-unit homes and credit scores above 580. For credit scores between 500-579, at least 10% is required. When there is a relationship between the seller and the buyer (which FHA defines as Identity-of-Interest), 15% down payment is required. However, exceptions allow for 3.5% down.
There is no minimum down payment for a VA loan if eligible veterans, service members, or survivors have full entitlement. It is possible and very common to purchase a home with a VA loan and a 0%/$0 down payment. If eligible veterans, service members, or survivors do not have full entitlement, calculations determine the required down payment based on the purchase price and remaining entitlement.
USDA loans are limited to rural areas and do not require a minimum down payment. Unlike VA loans, the location determines if the home qualifies for a USDA loan, in addition to typical borrower qualifications. The USDA provides a map tool to determine if a home is eligible:
E5 Home Loans has knowledgeable loan officers experienced in guiding first-time homebuyers through the process of determining the best loan product. To see what you might qualify to purchase or for any questions, contact E5 Home Loans. We get loans done fast while providing 5-star service and without charging a bunch of crazy lender fees.