How Much Should You Put Down On A House?

Down payment is one of the biggest upfront expenses that you have to make when buying a home. It’s quite common for people to get confused when deciding how much they should put down in a house, since there are no set rules or standards to follow. 

Although paying a higher down payment has its advantages in scenarios like bidding or getting a loan approved with a low credit score, you need to consider a few things before making that decision.

How will the down payment affect your lifestyle? Do you have enough savings to support the other expenses involved in the home buying process besides the down payment? 

These are only some of the questions you’ll need to answer before making a down payment. In this blog post, we will help you figure out how much you should put down on a house. 

Let’s start.

What is a down payment?

The down payment is the amount of money you put down upfront to buy a house. 

You can also think of it as your contribution toward the entire home purchase, an initial stake in the property. The remainder of the money left on the house will be provided through a mortgage lender.

A lender will take into account several factors when judging your ability to repay the loan. One of those factors is the amount of money you are ready to put down on the house. 

A higher down payment lowers your risk of defaulting since it leaves you with a relatively lesser amount in the loan balance. If you are willing to make a bigger down payment you are more likely to get your loan approved without any hiccups. However, you must prove that you are financially able to afford the loan with supporting documentation.

Mortgage pre-approval is one of the many ways you can make the home buying process easier. Here is a list of documents that you need to get a mortgage pre-approval.

Types of Mortgages and Their Down Payment Requirements

There are many different types of mortgages available in the market. You need to choose the best mortgage for you based on eligibility and requirements. 

Here are the minimum down payment requirements for different types of mortgage loans.

1. FHA Loans – you need to put a minimum of 3.5% down for home loans that are backed by the Federal Housing Association
2. VA loans – offered to current and veteran military personnel or their surviving eligible spouses by the U.S. Department of Veteran Affairs. These loans don’t require you to make a down payment, but they do require a funding fee, which varies depending upon factors such as the amount of loan, service category, and so on
3. USDA loans – these loans are offered by the U.S. Department of Agriculture to individuals with low income who are looking to buy homes in rural areas. As long as the property meets the USDA guidelines and your income falls under the program limits, you can get these loans with zero down payment. 

You can check out the limits and other eligibility factors for USDA loans here.

1. Fannie Mae and Freddie Mac loan programs – These government-sponsored mortgage enterprises offer loans that require only 3% down payment to borrowers who have a strong credit score. 
2. Jumbo loans – Jumbo loans are the most common type of non-conforming mortgage loans available in the market (a mortgage that does not conform to the loan purchasing guidelines set by the Federal National Mortgage Association /Federal Home Loan Mortgage Corporation). Jumbo loans require the borrowers to put at least 10%-20% down on a house. 

How Much Should You Put Down On A House?

Although there is no limit to how much average down payment on a house you should make, it is market standard to put at least 20% down. 

Here are some factors to consider when deciding how much you can afford to put down on a house:

• Monthly payments: Use a mortgage calculator to calculate an estimated amount of monthly payments you will have to make for the loan repayment
• Closing costs: Besides down payment, you will need cash in hand for other expenses such as closing costs, moving costs, maintenance expenses, and so on. Keep these into account when deciding how much down payment you should put on the house
• Emergency funds: Avoid spending all the cash you have on down payment and leave a certain amount for life’s emergencies
• Monthly expenditures: Calculate your monthly expenses, add to it the monthly payment you will be making post the loan. Ideally, the sum of these two expenses should not affect your lifestyle. So, calculate and decide accordingly. 

How to Save For a Down Payment?

Although we all dream of buying our first house, sometimes it’s quite difficult to save money for the down payment.  

If you struggle to save, then read these effective tips that will help you start saving to pay the down payment on your house:

1. Set a monthly budget: Set a monthly spending limit, and follow it religiously. Create a budget, listing expenses that are necessary and the ones that can be avoided. 
2. Cut down non-essential spending: Expenses like eating out, impulsive shopping, and others can cut into your home buying fund. To avoid that from happening, slash those expenses and focus on saving.
3. Save your windfalls: Tax refund, job bonus, financial gifts – all of these are collectively referred to as windfalls. Instead of spending these windfalls on your next vacation, start investing them or saving them in a deposit account.

Discover more tips about saving money in one of our other blog posts titled, “Things you must start doing if you want to save for a house“.

The Bottom Line

As you can see, there are multiple factors that one needs to consider when deciding how much to put down on a house. When it comes to saving, save early and make the necessary changes to your lifestyle to properly prepare for the down payment. Now that you know all of the factors that go into how much to put down on a house and how to save for it, you can start planning your home buying journey.

All the best.