X

What's coming up next year for mortgage rates... the Fed... housing markets... home prices? See HSH's 2022 Outlook for our expectations!

What's coming up next year for mortgage rates... the Fed... housing markets... home prices? See HSH's 2022 Outlook for our expectations!

Do I have to make a down payment?

Q: The home I am buying was listed for $269,900. I offered $275,000 to win the bid. The home was appraised for $270,000. I was approved for a loan of $270,000 before the appraisal. Do I still need to come up with a down payment if the approved loan amount is the same as the appraised value?

A: Yes, you will still need to come up with a down payment from your own funds.

Loans made at 100 percent of the value of the home are very rare nowadays, mostly limited only to certain audiences eligible for financing though the VA and USDA loan programs.

In general, you'll need to put down a minimum of 3.5 percent of the purchase price (for an FHA-backed loan) or usually about 10 percent (but possibly as little as 5 percent) for conventional financing. Certain issues, like a low credit score, for example, may see the lender require a larger down payment to help offset the risk that a low score or weak credit history presents.

An example…

The lender will generally allow you to borrow ("leverage") the home up to a given level; in this instance, if the value of the home is $275,000 and the lender will lend you up to 90 percent of the value of the home, you'll need a down payment of $27,500 (a 10 percent down payment, 90 percent loan-to-value loan, leaving a mortgage amount of $247,500). If the lender is able to offer you 95 percent financing, you'll need to come up with a 5 percent down payment of $13,750 -- leaving a $261,250 loan amount.

Be prepared to pay mortgage insurance

In all cases, down payment amounts of less than 20 percent will require mortgage insurance, which will affect your costs and the amount of money you can borrow. However, depending upon your situation and how long you think you'll be in the home, it can be beneficial to put more (or even less) down. That decision is the purpose behind HSH.com's Down Payment Decisioner Calculator, which can help you to see how interest and mortgage-insurance costs are affected by the size of your down payment choice both today and in the future.

Why are down payments required?

Financing at the 100 percent level -- where the borrower has "no skin in the game" -- was among the gimmickry implicated in the most recent housing market collapse. Borrowers who don't put any of their own money into the transaction have nothing to lose, and are less likely to want to keep making payments if things become economically difficult for them. That puts the lender at risk of loss, so that is why a minimum down payment is required today.

Ask the expert
Keith Gumbinger
Keith Gumbinger
Mortgage Expert
Vice President, HSH.com
About Keith: Mortgage market observer and analyst with 35 years experience... (more)
Submitting your question...

Question received! Check back later to see if your
question gets published.

Q: What loan amount does a mortgage need to be for it to be considered a Jumbo Loan?
JAN 03, 2022
A:

This question used to have a simple answer, since there was a "bright line" definition -- the conforming loan limit....

Read More
Q: What is the cost of getting a mortgage loan?
NOV 11, 2021
A:

 Costs and fees can vary depending upon lender policies and certain of the choices you make when you get your loan...

Read More
Q: What is the down payment required to get a mortgage these days?
NOV 03, 2021
A:

A: While some 100% financing may be available...

Read More
Add to Homescreen?
X
X
Install this web app on your phone :tap and then Add to homescreen