It is common home buying knowledge that when you purchase a home, you will be putting a down payment on it. A down payment is a payment made in cash that is a percentage of the total home cost. This percentage is typically 20%, though it can vary based on your circumstances and loan program.

Here’s what you should know about what determines your down payment:

Amount Of Cash Available To You

Have you been saving up? How much cash you have available on hand will limit how much of a down payment you can make. For example, if you only have $10,000 available for a down payment, and the home you want to buy is $140,000, then you will want to save up some more in order to meet minimum requirements. To figure out how much you will need to save up for in a down payment, simply find out what your home price range is and calculate a standard 20% down payment just to be safe.

The Price Of The Home

The price of the home will also be a (if not the) deciding factor on how much your down payment will be, as well as how high or low of a percentage of that price you can put down on it. For example, if you purchase a home for $150,000 and put down a standard 20% loan, then you put down $30,000 on the home. Since you put down $30,000 in cash on the home, you would have to borrow for around $120,000.

Your Mortgage Program & Credit Score

Your credit score and the type of mortgage program you choose to use will go a long way in deciding your down payment. There are some loan programs that will allow you to pay a low down payment (or none at all), and the lending program you choose will often have a minimum down payment based on your credit score. For example, if you have an FHA loan, the minimum down payment is 3.5% if your FICO score is 580 or higher.

Your Down Payment Will Affect Your Mortgage Rates

Remember: Whatever you decide to put down on a home, that down payment will affect your monthly mortgage rates. For example, the higher your down payment:

  • The lower your interest rate
  • No PMI
  • Lower monthly payments

When deciding how much to put down on a home, consult with your financial advisor and loan officer. They will help guide you through the process and give you the information you need to know.

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The above information is for educational purposes only. All information, loan programs and interest rates are subject to change without notice. All loans subject to underwriter approval. Terms and conditions apply. Always consult an accountant or tax advisor for full eligibility requirements on tax deduction.