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Are you buying a home in the near future and require a mortgage to help finance it? If so, you’ll likely require a down payment in order to secure a home loan. The question is, what’s the average down payment for a house?
According to recent data, the average down payment on a home ranges anywhere from 3.5% to around 20%. The amount you put down not only depends on how much you can muster up, but the exact type of mortgage you’re applying for.
FHA loans require far less of a down payment (minimum 3.5%) than conventional loans (at least 20%). Borrowers who apply for a VA loan may not even require a down payment at all.
Mortgage origination software company Ellie Mae puts out its “Origination Insight Report” (OIR) every so often, which keeps tabs on closed loan applications. The information provided by the OIR provides us with some useful insight into different trends in lending, including down payments.
The OIR also details the average loan-to-value (LTV) ratios for closed mortgages. refers to the loan amount borrowed relative to the value of the home being purchased. Lenders use this ratio to assess the lending risk before agreeing to approve a borrower for a mortgage.
The higher the LTV, the higher the risk for the lender. So, the smaller your down payment, the higher your loan amount will need to be, which will also increase your LTV.
For example, if a borrower takes out a loan for 80% of the purchase price of the home, they’ll need to make a down payment of 20%. If the borrower takes out a loan for 90%, they’ll need to make a down payment of 10%.
When it comes to conventional loans, the average down payment on a home is anywhere between 5% to 20%. For these types of loans, 3% is the minimum, while 20% is the threshold needed to avoid Private Mortgage Insurance (PMI).
“Conventional” means the mortgage is not guaranteed by the government. However, it should be noted that a 20% down payment isn’t necessary for conventional loans. Buyers can still qualify for a conventional loan with a down payment as low as 3% of the home’s purchase price. The LTV numbers noted earlier are not minimums, but are simply averages.
As per the OIR, the average down payment among buyers who take out an FHA loan to buy a house is 5%. The minimum down payment amount needed to buy a home with an FHA loan is 3.5%.
The VA loan program allows eligible borrowers to avoid down payments altogether. These programs offer 100% financing in many cases, which means borrowers don’t need a down payment in order to buy a house, and many times they don’t need mortgage insurance either.
Having said that, some borrowers might still choose to make a down payment with a VA loan in order to keep their overall loan amount and mortgage payments lower, despite the 100% financing. The average down payment amount on a VA home loan is about 2%, according to Ellie Mae.
As mentioned earlier, mortgages that are made for more than 80% of the value of a home — which means smaller down payments under 20% — require mortgage insurance. So, if you put a 10% down payment on a home, for instance, you’ll have to add mortgage insurance to your mortgage payments.
The majority of borrowers who apply for FHA loans wind up paying mortgage insurance premiums, which will make monthly payments more expensive. Further, most conventional mortgages with LTV ratios over 80% require private mortgage insurance (PMI).
The VA loan program is different in this regard. Buyers who secure a VA loan to buy a home may be eligible for 100% financing, which means no down payment or mortgage insurance.
At the end of the day, if you make a down payment of less than 20% on a home, odds are you’ll need to pay mortgage insurance. On the positive side, mortgage insurance allows borrowers to qualify for a mortgage with a smaller down payment, which otherwise wouldn’t be possible.
Are you planning to buy a house in the near future, or do you have questions about down payments, mortgage insurance, or mortgage programs? Sammamish Mortgage can help. We have been helping borrowers across the Pacific Northwest since 1992. Get in touch with us today if you’re ready to get the home loan process started!
If you’re thinking of buying a home in Colorado but aren’t sure about how much to put down, this blog post will help you make that decision.
Down payment percentages are based on the home price. So, a more expensive property will result in a larger upfront investment, with all other things being equal.