The average down payment for a home in America is only 12%.

A down payment on a home is less than you think.

The thought of saving for a down payment on a home is an overwhelming thought. There are many questions that circle around your head like: How much is an acceptable down payment? What if I can’t put a lot of money down? Read through the following paragraphs to learn the answers to these questions and more about the average down payment for a home in the U.S.

What is a Down Payment?

A down payment is a percentage of the purchase price the buyer has to pay in cash. The rest of the home’s price is financed. 

If the purchase price of a home is $200,000 and you need 10% down, you will pay $20,000 in cash for the down payment. 

The amount of money you pay in your down payment affects your mortgage. You will have a lower monthly mortgage payment if you put more money down.

The Average Down Payment

The National Association of Realtors reported in 2019, that 12% of a home’s value was the average amount buyers put down on a house or condo. 

First time buyers only need to have a 6% of a home’s value for a down payment. Many buyers put down even less.

There are some types of loans or mortgages that have low down payments.

What is a home mortgage?

 A home mortgage is a loan from a bank, mortgage company or other financial institution for the purchase of a residence. 

The home’s buyer transfers the title of the property to the bank. The bank turns the title over to the buyer once the residence has been completely paid for. 

A home mortgage may have a fixed or floating interest rate, with a span of three to 30 years.

Home mortgages are a common form of debt in the U.S. 

How Does a Mortgage Work?

Home mortgages give many different types of people the opportunity to own a home, since the home’s full market value does not need to be paid for up front.

The lender does have the right to foreclose the home and sell it if the buyer does not pay the mortgage.

A mortgage will have either a fixed or adjustable interest rate. 

How to Get a Mortgage

 A home buyer must prove he/she is capable of paying the loan back.  The buyer submits an application to the lender about his/her financial history to get pre-approved.

The buyer gives all information on his/her credit card rating, assets, debt and income.  The lender then gives a conditional commitment.  A buyer can look for a home at or below the amount of the conditional commitment. 

The buyer receives a loan commitment after a bank approves him/her as the borrower. The lender puts a lien on the home. The lien allows the lender to take back the home if the borrower defaults on the loan.

You can qualify for a mortgage with a low down payment.

Types of Mortgages With Low Down Payments

Some mortgages ask for a low down payment.

  • The VA loan is for veterans, service members and some surviving spouses. The loan does not require a down payment, mortgage insurance and has lenient rules about qualifying. 
  • The USDA Loan is for those with a low-to-average income reduced mortgage insurance premiums and below market mortgage rates if the buyer purchases the home in rural and some suburban areas.
  • The HomeReady mortgage from Fannie Mae and the Home Possible mortgage from Freddie Mac require only 3% down. 
  • The FHA loan has a 3.5% down payment.

Private Mortgage Insurance 

Borrowers usually purchase private mortgage insurance (PMI) or a mortgage insurance premium (MIP) if they make a down payment of less than 20%.

 This insurance policy protects the lender if there is a default on the mortgage. 

The premiums often go away when the mortgage balance goes below 80% of the home’s market value.

A buyer’s credit score, type of mortgage and his/her finances affect how much the PMI or MIP will be.

The Benefits of a Lower Down Payment

 A house with a smaller down payment makes many a homeowner sooner.  The purchased property will probably grow in value every year.

 The lender might get rid of the PMI premiums or allow the buyer to refinance a mortgage as it is paid down.

A lower down payment gives more Americans the chance to be homeowners.

Changes

Gone are the days when a traditional 20% of a home’s price is needed as a down payment for a home. Most Americans make a much lower down payment on their home. Many mortgages need only a low down payment for buyers to qualify. A lower down payment gives more Americans have the chance to be homeowners.

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