Unlocking the Answer: How Much Down Payment on a House Do You Need?

The Type of the Mortgage Loan and How Much Down Payment On A House Is Needed

The down payment required is dependent on the type of loan program used. Some programs, like a house down payment program, could help a home buyer bulk up their down payment. Regardless, first-time homebuyers often are not sure how much money they need to have available to them upfront to put towards a home purchase.

To determine this, consider the various types of loan programs and the down payment each typically requires.

Conventional Home Loan Minimum Down Payment

A conventional loan is one of the most common forms. This type of mortgage loan is typically available to those with good or better credit. About 80% of all loans in the US are conventional loans.

The requirements for a conventional loan will range from 3 to 5% for primary residences but can reach up to 25% for investment properties. Buying a second home typically requires a down payment of at least 10%.

Consider unique situations. For example, if a home buyer is purchasing a home for a disabled parent or child, in that they will not actually live in the home themselves, this is still considered a primary residence. The down payment in this situation still falls between the 3 and 5 % requirement in most situations. In most cases, the higher the down payment is, the lower the interest rate is likely to be on the loan. Use the Fannie Mae website to determine specific down payment needed in any given area.

Also important is that conventional loans have a loan limit. In 2024, for most areas of the country, this is $766,550. This means that the loan cannot exceed this value. If it does, it falls under the rules of jumbo loans, and the down payment required in these situations is typically higher. These are often referred to as conforming loan limits. Freddie Mac and Fannie Mae set these.

FHA Loans Minimum Down Payment Requirements

An FHA loan is a common option for first-time home buyers. The Federal Housing Administration (FHA) provides government-insured loan guarantees to mortgage lenders, who offer borrowers without extensive home-buying experience access to a home. FHA, which is a program administered by the Housing and Urban Development (HUD) department, is a very common way to borrow funds. The program was first put in place to provide borrowers with lower credit scores and higher debt-to-income ratios with affordable mortgage rates and loans.

It is not available just for first-time homebuyers – Repeat buyers can use these loans.

FHA down payments tend to be a little more flexible than conventional mortgage loans. Typically, these loans require 3.5% down. It cannot be used to purchase an investment property.

For many, this is the best mortgage option if they meet eligibility.

The required down payment on an FHA can be a bit more tricky to determine. First, there are some situations where the home buyer will need to have a down payment that is 10% or higher. This occurs in situations where the home buyer has a credit score that is very low, typically under 580.

However, FHA loan minimum down payment requirements can be much lower, even as low as 3.5% of the purchase price. This type of loan can be used on properties with 1 to 4 residents as long as the borrower lives within one of them. FHA mortgages offer other benefits, too, including low closing costs and easier credit qualifications.

FHA loan limits

Like conventional loans, FHA’s have a limit as well. In 2024 in Virginia Beach and the Hampton Roads area, this limit is $690,000. That figure went up from $507,150 in 2023.

FHA Identity of Interest factors

Another important consideration for these loans is called “Identity of Interest”, a term that describes pre-existing family or business relationships between those who are selling the home and those who are buying the home. A person buying a home from a landlord, for example, must have lived in that home for at least 6 months. In this situation, the home buyer must put down 15% of the loan amount as the minimum down payment.

Another important example occurs if a home buyer wants to help someone else who is not a family member to buy a home. If the person obtaining the loan does not plan to live there, the minimum down payment may be different. Family members could include spouses, parents to children, siblings, stepchildren, aunts and uncles, nieces and nephews, and others. In this situation, the house down payment requirement jumps to 25% if there is no family relationship with the co-signer possible. For those who are first-time home buyers in Virginia, working with a qualified lender is critical.

It is also possible to view a full breakdown of the Housing and Urban Development rules for home buyers and homeowners on their website. Be sure to consider several lenders when making financial decisions like this. For guidance compare lenders of various types to determine the best fit for your financial needs with this or any of the other mortgage programs available.

How Much Down Payment On A House With VA Loans 

The Department of Veterans Affairs (VA) provides some people with help with their purchase of real estate and the goal of homeownership through VA home loans. It applies for active duty military professionals and veterans to obtain a loan backed by the VA. There are some excellent benefits to the homebuying process for those who are veterans including that there is no house down payment requirement.

This type of home can only be used to purchase a primary residence. It cannot be used for investment properties or second homes.

There are a few things to know about these loans, even if you do not need a large down payment and need less money upfront. First, there is a funding fee that is required as a part of the homebuying process. This fee is based on the house down payment amount and home value. The amount varies based on whether or not the home buyer has used a VA-specific loan previously as well.

When it comes to down payment loan requirements, here are a few things to note in this area:

• First use of the VA loan: In this situation, the fee is 2.15% of the purchase price.

• In situations where a down payment of 5% or more is put into place with the first-time buyers using a VA loan, this funding fee drops to 15%, then down to 1.25% when 10% or more is used.

• If this is the second time using a VA loan, there is no down payment requirement. The fee here is still 3.3%. If you put more than 5% down, the VA funding fee goes down to 1.5% and if you put more than 10% down the funding fee goes down to 1.25%.

This fee is not something that the home buyer must pay now. It can be financed into the loan. That means the fee is paid off over the life of the loan.

VA-backed purchase and construction loans

Rates for Veterans, active-duty service members, and National Guard and Reserve members

Note: If you used a VA-backed or VA direct home loan to purchase only a manufactured home in the past, you’ll still pay the first-time funding fee.

Depending on the financial situation and home’s purchase price, this could be an excellent route for funding Virginia Beach real estate purchases. It eliminates the need to have one, though a low down payment may still be desirable to lower overall monthly loan payments.

How Much Down Payment On A House With USDA Loans

The U.S. Department of Agriculture (USDA) is another avenue for obtaining financial support and a lower average down payment for a home purchase. USDA loans were designed to spur economic activity in rural areas. Eligibility depends on where the home buyer decides to purchase a home. This often leads to no down payment requirement and low monthly mortgage insurance payments compared to FHA loans and others. USDA loans also offer flexible loan term and loan options that keep interest rates, monthly payments, and home buying power aligned with home buyer goals.

The key to purchasing a home with USDA funding is to know the housing market. These loans are often misunderstood in that “rural” areas may be any location defined by the USDA as an ideal area for development. This is not necessarily property located in locations like New York City, of course, but there are areas of Virginia Beach real estate that do qualify.

In the Hampton Roads area, the cities/counties that are USDA loan-eligible are Isle of Wight County, Surrey County, Southampton County, Gloucester County, Williamsburg, James City County, & New Kent County. Also included are all of Northeast North Carolina, including Camden, Dare, and Gate Counties. Those interested in these options can find more information on the USDA website.

Note there are numerous differences between USDA mortgages and other loans. One factor to consider is private mortgage insurance (PMI). A higher down payment reduces risk to lenders because the home buyer is less likely to default. When a down payment is lower, the mortgage lender may require private mortgage insurance, which typically applies in situations where a home buyer purchases a home with less than 20% down. FHA and other types of loan programs have these requirements.

One of the core benefits of USDA loans is that it does not require this fee. Instead, there is an upfront guarantee fee that is paid at the time of closing the loan. There is also an annual fee paid which is included in the monthly mortgage payment. The upfront fee is 1% of the amount financed through the loan, and the annual fee is 0.35% of the current balance on the loan.

When a consumer aims to buy a home, and their personal finance situation does not show that they have the funds available to them to make a down payment, the use of house down payment assistance programs may offer help. For those that do not have the minimum down payment required for a loan, these programs can provide support.

A down payment can be one of the most challenging components of obtaining a loan is having a typical down payment. They may have good credit, enough money to make a monthly mortgage payment, and even an emergency fund to cover financial costs as they arise. Yet, the down payment is often the hard part.

The house down payment amounts above are typically required. There are some loan programs that may help to offer some financial support, meaning the home buyer does not have to have a lot of money when buying a new home at their sales price. Some of these programs are run by state or local governments. There are numerous options out there, including some that reduce the down payment to as little as 1%. Others do not require a down payment on house loans depending on whether or not the consumer meets qualifications.

The most popular state program in Virginia is Virginia Housing’s Down Payment and Closing Costs Assistant programs. These programs give you a Conventional, FHA, USDA, or VA Loan as your first mortgage and then will either loan you the house down payment/closing costs assistance or give you that money in the form of a grant.  This is a great way for first-time (and repeat) homebuyers to purchase a home without bringing any money to the table. 

House down payment programs all have income limits to make sure the money is going to homebuyers who actually need the help and not the top income earners.  These income limits vary by program, so make sure to talk to your mortgage lender about the options.    

For more information about assistance programs for house down payments, please see BLOG POST.