How Much Cash Do You Really Need to Buy a Home?

Many buyers come to the table with a 20% down payment. If you don’t have enough money for a 20% down payment, don’t panic—there are low down payment and no down payment mortgage options out there. 

Down Payments and Mortgage Options

Many buyers aim for a 20% down payment, but you can get a mortgage with a lighter down payment—or no down payment at all. Here are three popular mortgage options.

1. Conventional Mortgage

Many financial institutions prefer borrowers with 20% down payments, but some offer 5% down payment mortgages. If you put less than 20% down, you’ll probably need to purchase private mortgage insurance (PMI).

If you live in a rural area, you might qualify for a USDA-backed mortgage. If you’re eligible for a USDA mortgage, you won’t have to come up with a down payment.

2. USDA Mortgage

Another type of government-backed loan, Federal Housing Administration (FHA) mortgages accept down payments as low as 3.5%. To get an FHA loan, you need to: - Live in the home full time. - Stay under the FHA maximum mortgage limit. - Maintain a specific debt-to-income ratio.

3. FHA Mortgage

Closing costs, which include taxes, appraisals, title costs and attorney fees, are generally between 3% and 6% of your mortgage principal. Your mortgage principal is the amount you borrow—so the bigger your down payment, the less you’ll pay in closing costs.

Typical Closing Costs

You can’t borrow money for a down payment. Here are a few legitimate funding sources for a down payment: – Stock or bond sales – An IRA or 401(k) withdrawal – Money from your checking or savings account – Cash from a money market account – A portion of your retirement account – A monetary gift 

Financial Resource Ideas

It’s important to look at the big picture when buying a house. You’ll need to pull together a down payment and closing costs, but you’ll also need to budget for removal costs, inspections and repair fees.

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