Down Payment
The down payment is the portion of a home's purchase price paid upfront by the buyer at closing, with the remainder financed through a mortgage. The down payment amount directly affects the loan-to-value ratio, available loan programs, interest rates, and whether mortgage insurance is required.
What This Means
Down Payment Requirements by Loan Type
Minimum down payment requirements vary significantly by loan program:
- Conventional loans: minimum for first-time buyers (Fannie Mae HomeReady, Freddie Mac Home Possible); standard minimum
- FHA loans: minimum with a credit score of or higher; with scores between
- VA loans: down for eligible veterans and active-duty service members
- USDA loans: down for eligible rural and suburban properties
Investment properties typically require down depending on the number of units and loan program.
Impact on Loan Terms
A larger down payment reduces the loan amount, which lowers the monthly payment and total interest paid over the life of the loan. Borrowers who put less than down on a conventional loan are required to carry private mortgage insurance (PMI), adding to the monthly cost. Reaching 20% equity (through a combination of down payment and appreciation) allows borrowers to request PMI removal.
Acceptable Down Payment Sources
Lenders verify the source of down payment funds. Acceptable sources include personal savings, investment account proceeds, gift funds from family members (with a gift letter), down payment assistance programs, and proceeds from the sale of another property. Borrowed funds, such as personal loans or credit card advances, are generally not acceptable as down payment sources for most loan programs.