Now let's give you the quick down-low on down payments for some common home loan options.
Mortgage Loan Types
There are a lot of mortgage options to consider, but choosing a mortgage doesn't have to be overwhelming. This guide will answer questions about types of mortgage loans, how they compare to each other and how to find the best loan type for you.
Conventional Home Loans
Conventional loans are the most common type of mortgage on the market, accounting for over 70% of mortgages. They have stricter criteria than government-backed loans. You'll typically need a credit score of at least 620 and a down payment of at least 3% of your home's purchase price.
Additionally, unless you put at least 20% down, you'll likely have to pay mortgage insurance, an extra fee to offset the lender's risk because of your low equity in the home. Higher standards for your overall debt-to-income ratio are common, which is the amount of your monthly income that goes toward paying off debt.
These loans are a good option if you have enough savings to make a significant down payment, good credit and relative financial stability.
Government-Backed Home Loans
If you think a conventional loan might not be a good fit, there are several federally backed loans you can consider. These loans are backed by the Federal Housing Administration (FHA), the U.S. Department of Agriculture (USDA) or the Department of Veterans Affairs (VA). They are sold by standard lenders, but because lenders aren't bearing all the risk, they often offer more flexible qualifications for borrowers with these loans.
Each type has slightly different criteria, so let's look at each one in turn.
FHA Loans
FHA loans are available to homebuyers with a credit score of at least 580, verifiable employment history and at least a 3.5% down payment.
You must also have a debt-to-income ratio lower than 50%, no foreclosures in the last three years, and use the loan to finance your primary residence.
USDA Loans
USDA loans have more limited availability than FHA loans. The main differentiating factor is the home must be in a qualified suburban or rural area. USDA loans also have income limits, the current standard USDA loan income limit for 1-4 member households is $91,900
One of the most attractive benefits of the USDA loan is that there is no down payment.
VA Loans
VA loans are only available to military service members, Veterans and surviving spouses. These loans don't require a down payment, and they typically have lower interest rates compared to most other loans. There's no mortgage insurance on VA loans, but there is often a VA funding fee.
If you are a civilian homebuyer, the VA Loan is not an option for you.
Jumbo Loans
Jumbo loans exceed the limit for conforming loans in your area. In most parts of the country, that limit is $647,200 for a single-family property. This means if your home were to exceed the loan limit in your area, it’s a jumbo loan.
These loans may have similar interest rates to conforming loans, but they could have higher credit score and down payment requirements due to the size of the loan. You'll need to demonstrate a strong ability to handle the large monthly payment that comes with these loans.
