How Much Money Should a First-Time Home Buyer Put Down?

Down payment arrow on top of cash next to a calculator

Down Payments:

  • Funds for a down payment must be documented and typically in an account for a certain amount of time, generally two to three months.
  • Funds can include cash from checking or savings accounts, saving bonds and investments, and gift funds.
  • Save more than what you plan to use as your down payment. Do not drain all your accounts.

Mortgage Insurance:

  • With 20% down on your loan amount, you will not have to pay Private Mortgage Insurance (PMI), an insurance policy that protects lenders from the balance of your loan over 80% of the appraised value of the home.
  • The cost for PMI insurance is charged to the loan and generally costs between .5% and 1% of the loan amount, every year. For example, a $100,000 loan at a 1% PMI charge would cost 1% x $100,000 = $1,000/12 = $83.33 per month. 

It can be challenging for a First time home buyer to save 20% for a down payment and cover closing costs. The good news is there are loan types that do not require 20% down. Here are several options:

  • VA loans can be zero down.
  • FHA loans are as little as 3.25% down.
  • Conventional loans may require 5% to 10% down.

Crunch the Numbers:

  • Use a mortgage calculator to provide an estimate of your monthly payment. The estimate should include anticipated monthly costs for property tax and insurance.
  • Get pre-approved for your loan to determine the interest rate you will receive.
  • Most financial planners recommend no more than 25-30 percent of your net income on your mortgage payment.
  • Some neighborhoods have Homeowners Associations (HOA) dues with annual dues.

Use a Lender You Trust:

Going with a lender you trust to help you get the lowest rate possible while directing you through the process is most important. At Transcend, we build relationships with our members and work to help everyone reach their long-term financial goals… and take care of not only their present but their future selves. We would be honored to help you.