How Much Should You Put Down on a House?

20% is often touted as the amount for any prospective homebuyer and that may have been true years ago, these days there are more flexible funding options available. Unless you are part of the small percentage of homebuyers who are able to put in an all-cash offer, you will likely need a mortgage and a down payment to buy a home.

While putting down 20% has a major advantage such as avoiding a PMI, or private mortgage insurance, there are various types of loans that offer various down payment options. These can range anywhere between 3% to 20%. There are conventional mortgages that require 5% to 15% while FHA loans that are backed by the government are as little as 3.5%. There are even some loans that require no down payment at all like a VA loan or a USDA loan.

In 2020 the typical down payment was just 12%. What percentage is right for you should be determined by your budget and goals because that amount will impact the affordability of your loan, the monthly mortgage payment, and the interest rate. There are some benefits of a bigger down payment. For one, you will pay less in interest. It will also give you a competitive edge as a buyer and borrower. The larger the down payment is, the more it signals financial stability to the lender. To a lender that equates to less risk.

When considering purchasing a home, it’s important to consider how much you can afford. Draining your savings is probably not a good idea because there are other costs with buying a home. Not only do you have to consider closing costs, but also moving expenses and budgeting for minor repairs. Your down payment is a one-time cost, but it has an impact for the live of your mortgage. Once you know how much house you can afford when your lender preapproves you and you know the types of loans that are available to you, you will be able to calculate the numbers to determine how the size of your down payment will impact your monthly mortgage.

Your aim should be to find the best mortgage for your financial circumstances while shopping for a mortgage, and the same rules should apply to down payments. Rather than squeezing yourself to put down a specific percentage, focus on an amount that would help you lock in a reasonable interest rate and a monthly payment that you can afford.