If you're eyeing a $350,000 house, you should anticipate putting down up to 20% or $70,000. However, there are other expenses and factors to determine just how much cash you'll need to put down to secure your dream home.
At Texas United Mortgage, we’ve helped thousands of customers secure home loans. We’re here to help you plan and understand what goes into your down payment.
What You're Actually Paying When You Buy a House
Let's take a quick look at what you're actually paying for when you buy a house. Beyond the sticker price, you'll also need to cover things like closing costs, property taxes, and insurance.
“Closing costs, depending on the loan program you use, will typically amount to between 2-3% of the sales price,” shares Reef Mehri, Branch Manager at Texas United Mortgage.
“However, what people may not realize is that these expenses can be paid by a third party, such as the seller, the lender, or even the realtor. While there are limits, a smart lender can help their buyer write a contract that maximizes credits and expenses to their benefit.”
What is an Earnest Deposit?
Once you've found a house you love and are ready to make an offer, you'll need to put down an earnest deposit to show the seller you're serious. The amount of this deposit varies but is typically around 1-2% of the home's purchase price.
But don’t worry! Once your home transaction is complete, the Earnest Money will be credited toward your down payment.
What is the Down Payment Percentage?
The down payment is the amount of money you pay upfront when purchasing a home. The percentage you'll need to put down can vary, but a common rule of thumb is 20%.
However, the exact amount or percentage will depend on your credit score and the loan type.
Here’s a quick reference guide to some common loan types:
- Conventional Loan: A conventional loan is not backed by the government and typically requires a down payment of at least 3-5% of the home's purchase price. However, if you put down less than 20%, you may be required to pay for private mortgage insurance (PMI).
- FHA Loan: An FHA loan is insured by the Federal Housing Administration and typically requires a down payment of 3.5% of the home's purchase price. This type of loan is often popular with first-time homebuyers who may not have a large down payment saved up.
- VA Loan: A VA loan is available to active-duty service members, veterans, and eligible surviving spouses and does not require a down payment. However, there may be other fees associated with this type of loan.
- USDA Loan: A USDA loan is available for homes in rural areas and typically requires no down payment. However, there are income limits and other requirements for this type of loan.
Average Down Payment on a $350,000 Home
While a 20% down payment is ideal, it's not always feasible for everyone. The good news is that there are other options available. Depending on the loan type, some lenders offer loans with lower down payment requirements, such as 5% or 10%. For qualifying buyers, FHA loans require just 3.5% down.
“We tell buyers to assume that the down payment for a conventional loan is 5%, but some will qualify for less,” says Mehri. “And of course, the down payment for an FHA loan is lower at 3.5%, while VA and USDA loans could be 0%.”
However, keep in mind that a lower down payment typically means a higher monthly mortgage payment and potentially higher interest rates. That’s where working with a local, experienced lender becomes important. You want someone who will help you find the best loan for your specific needs.
“If you want the benefit of paying down your mortgage with a down payment but need help to come up with the funds, Texas has some great options. There are down payment assistance programs that are income-specific by the Texas county you’re buying the home in.”
This is where working with an experienced, local lender comes in handy!
How Interest Rates Impact Down Payments
You may have been hearing a lot about interest rates on the news. Well, they can have a significant impact on your down payment.
“Builders are putting money toward closing costs to help buy down rates to motivate buyers,” shares Mehri. “But sometimes the smarter move is to use those credits to cover closing costs or down payments instead. It’s all about using your money and credits wisely to maximize your long-term benefits and goals.”
When interest rates are low, you may be able to afford a larger down payment since your monthly mortgage payments will be lower. On the other hand, when interest rates are higher like they are right now, you may need to put down a smaller percentage to keep your monthly payments affordable.
To find out what types of loans you qualify for and what down payment funds you should prepare, reach out to Texas United Mortgage today! We can help get you into a home that works for your budget.
