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Getting started

Down payments

A down payment is the money you pay at closing toward the cost of your new home. It’s the difference between your mortgage amount and your purchase price.

Down payment amount video(Opens Overlay)

Down payment amount

There are some important factors to consider when deciding your down payment amount.

How much home can you afford?

Take the first step and get prequalified.

Consider these factors when deciding how much money to put down:

The more you put down, the more you potentially benefit.

Putting a higher amount of money down may lower your interest rate and build equity in your home quicker. If your down payment on a conventional loan is less than 20%, you must pay private mortgage insurance (PMI), which covers the lender if you stop paying your mortgage and default on your loan. The yearly cost of PMI is about 1% of your outstanding loan balance and is added to your monthly mortgage payment. You can request to have PMI eliminated once your outstanding balance reaches 80% of the original loan amount.

Down payment amounts vary depending on loan type.

Some loan types may require less of a down payment, such as only a 3% to 5% down payment. Federal Housing Administration (FHA) loans require a 3.5% down payment, while the U.S. Department of Veterans Affairs (VA) loans may not require any money down.


Here are a few ways to fund your down payment:

Savings

Many buyers have a savings account that they’ll tap into for a down payment. If you’re looking to build your savings for a down payment, consider reducing expenses, avoiding major purchases or postponing vacations. Create a budget to outline your expenses, finding opportunities to save money and deposit it into your savings account. You can also set up repeating and/or automatic transfers from your checking account to your savings account.

Financial gift

You can accept a monetary gift from a relative to use toward your down payment, but there are some restrictions. The IRS doesn’t require a tax on gifts less than $14,000 per person (a relative could give you and your spouse/partner up to $14,000 each). You must verify in writing that the person giving you the gift has no financial interest in or obligation toward the property and doesn’t expect you to repay the gift. Your lender may not accept the gift if it’s really a loan. Plus, there may be gift restrictions based on your loan type.

Proceeds from the sale of your existing home

You could use the money from the sale of your current home for the down payment for a new home.

Borrowing from your 401(k) or IRA

First-time homebuyers can take up to $10,000 from a traditional IRA for homebuying expenses without the 10% penalty for early withdrawals. However, you’ll be required to pay taxes on the withdrawal itself. Another option is to withdraw your original contributions (not the earnings) from a Roth IRA. You may not face any taxes or penalties.

Down payment assistance programs

Many state and local governments offer financial grants to homebuyers. Many nonprofit organizations also offer financial assistance. Money for these programs often goes unused because homeowners think they don’t qualify when they actually do.

Work with your Home Lending Advisor to determine the various types of mortgages available and down payment requirements.