Note: We can assist you with determining down payment requirements and monthly housing obligations. Simply give our team a call or drop us an e-mail.

How Much Down Payment Is Required?

The down payment for the purchase of a home is typically expressed as a percentage of the overall purchase price. The down payment can vary depending on many factors. For example, the lender, the type of loan program, the amount of money you borrow, your credit rating, to name a few.

Typical down payments in the past were 20% of the purchase price of the home. However, lenders and government programs have made it much easier for all of us to achieve the American Dream. There are now conventional loan programs available with as little as 3% down, and even a few with 0% down if you have an excellent credit rating. Government backed financing programs, such as VA (Department of Veteran’s Affairs) and FHA (Federal Housing Administration), also offer little or no down payment, and these programs tend to be a little more lenient with qualifying ratios and credit ratings.

Gifts As Down Payments

If you are having trouble saving enough money for a down payment, most lenders will allow you to receive a gift from family, friends or other sources, to use as your down payment, and possibly even closing costs. Some lenders may require you to pay a portion of the down payment and/or closing costs from your own funds, and nearly all lenders will require a “gift letter” from the giver stating that you do not have to repay the gift.

Earnest Money

When you make an offer to purchase a home, you are typically required to put up earnest money as good faith to the seller. If the offer is accepted, your earnest money will be deposited with your choice of title company (earnest money is not typically held by the seller in Arizona), and will be applied towards your down payment.

The amount of earnest money you are required to put up varies depending on the seller (earnest money deposits are negotiable) and local custom. Typically, you can expect to deposit at least 1% of the purchase price of the home. Therefore, you will need to plan on having earnest money funds available when you make an offer on a home.

Private Mortgage Insurance

Private Mortgage Insurance, also referred to as PMI, protects the lender in case of loan default. Typically, if your down payment is less than 20% of the purchase price, you will be required to pay for PMI. The PMI premium is usually incorporated into your monthly payment and varies in amount, as a percentage of the purchase price, based on the actual amount of your down payment.

Most conventional loans require a monthly premium, while government loans typically require both an up front payment, known as Mortgage Insurance Premium (MIP), and a monthly premium. However, the monthly premium for a government loan is about half that of a conventional loan with a similar down payment.

Under most conventional loans, once you have paid off 20% of the loan amount, you can request to have the policy cancelled. Some lenders will cancel the policy automatically, while others may require you to request a cancellation in writing. Government loans on the other hand, do not typically offer this provision for cancellation of PMI; it usually runs with the life of the loan.

I would be happy to discuss financing options with you. I can offer you a preliminary pre-qualification, provide you with an estimated down payment and monthly payment, and let you know approximately what your closing costs will be. Simply give ME a call and I’ll be happy to assist you.