While 20% is the standard down payment, there are loans that require little to no down payment at all.
- Itemize your available assets.
- Review down payment options with your lender.
- Ask for a detailed estimate of closing costs.
While 20% is the standard down payment, there are loans that require little to no down payment at all.
Putting down 20% of the purchase price is the standard for the purchase of a home. However, many people, especially first-time homebuyers,put 5% or 10% down—or sometimes nothing at all—with a ‘piggyback loan’ a combination of an 80% loan-to-value first mortgage and either a home equity line or a home equity loan. During the pre-approval process your broker or loan officer will discuss your down payment options. The minimum down payment will depend on the lender’s guidelines, the loan type and size, your credit score, and whether you are doing a stated income loan.
Often lenders will make an exception to their down payment requirements for a ‘strong’ borrower, one with some combination of high credit scores, high and/or stable income, and asset reserves. For example, a lender might look favorably on a very small down payment from a borrower with a sizable 401k; the borrower might not want to liquidate retirement funds to use for the down payment, but could liquidate those funds in the future if the situation demanded it.
When figuring what you have available for down payment, make a list of:
Next, decide how much of these assets you want to use for your purchase. Add to this any gift money you will be receiving. You can use the Buyer’s worksheet to aggregate your information.
Unless you are doing a stated asset loan, you will need account statements, or a verification of deposit that your broker or loan officer will obtain, to show the lender that your down payment money is ‘seasoned’—that you have had that money in your account(s) for at least two months. The lender wants to be sure that you haven’t secretly borrowed the money for your home purchase, which would add to your monthly debt and increase the lender’s risk.
If you are receiving gift funds, you will usually need a letter from your benefactor—most lenders require that it be a relative—stating that the money is a gift and there is no expectation of repayment. Some lenders may also ask for the most recent statement from the account from which the gift is coming in order to confirm that the money is being sent by the donor. For more information on gift funds see What about using gift funds?
