Do You Have to Put Down 20 on a House?

The time has come, and you’re ready to purchase a home, but you may wonder, “Do you have to put down 20% on a house?” The short answer is “No.” However, while some loans have no down payment requirements, there are benefits to investing money up front. Making a larger down payment allows you to save money on fees like closing costs and private mortgage insurance, pay off your loan more quickly, and reduce your monthly expenses. If you can’t make that initial investment, there are available options for down payment assistance for your first home.

Read on to discover if you have to put down 20% on a house as well as the pros and cons of making a larger down payment.

Down payment options by loan type

Here are a few mortgage options ranked from lowest to highest down payment requirements:

• VA home loans offer no to low down payments depending on your level of VA entitlement. Nearly 90% of VA-backed home loans require no money down.
• USDA home loans offer 100% financing with no down payment requirements; however, your property must qualify as a USDA-defined rural area.
• Local DPA programs provide assistance within certain localities. While terms and conditions vary, this type of DPA can typically provide significant help to first-time homebuyers and veterans.
• The Chenoa Fund is a national DPA program that offers eligible applicants 3.5% to 5% of your home’s purchase price.
• The HOMEownership Down Payment and Closing Cost Assistance Program offers gap financing, or a temporary loan, until first-time homebuyers can find a permanent solution.
• Conventional loans are those available through private lenders, including banks, credit unions, and mortgage companies.
• FHA loans can provide down payment assistance from anywhere between 3.5% and 10%, depending on your credit score.

Understanding the advantages of a larger down payment

If you can’t handle that large lump sum, it’s perfectly acceptable to harness DPA options. However, if you do have some money to put down, you could potentially enjoy these benefits:

• Lower monthly mortgage payments
• A more flexible monthly budget
• A lower loan-to-value ratio (LTV)
• More lenient loan terms and conditions
• Less interest expense over the loan’s lifetime
• Access to more loan funding for your home

Putting down more money up front could also free up funds for additional homeownership expenses, such as property maintenance.

Things to remember before putting down money on a house

Though the benefits of making a larger down payment sound appealing, here are some things to keep in mind:

• Don’t deplete your savings. Doing so could negatively affect your long-term financial health.
• Be sure to reserve funds for home expenses, such as taxes, home insurance, and repairs.
• Weigh your options. Is it better to lay down a large initial payment, or would your funds receive more return through long-term investments?
• Large down payment benefits tend to pay off in the long term, so if this isn’t your forever home, consider saving your money or investing elsewhere.

To find out whether you have to put down 20% on a house, talk to an OVM Financial expert who can help you evaluate your options. You can also explore our blog to find more information about down payment assistance for an FHA loan as well as how to purchase a home with low income.