How Much Money to Save For A Down Payment?

There are two different pieces to this. There’s what you’re required to save and then the best down payment for you given your situation.

If you happen to qualify for a USDA or VA loan, no down payment is required. If you’re getting an FHA loan, the minimum down payment is 3.5%.

If you qualify for a conventional loan through either Fannie Mae or Freddie Mac, down payments start at 3% and in no event would you have to put down more than 5% of the purchase price on a primary residence.

However, there are plenty of reasons to make a higher down payment if you can afford it. On a conventional loan, if you put 20% down, you can avoid having to pay for private mortgage insurance (PMI). Otherwise, you can ask that it be canceled once you reach 20% equity.

On an FHA loan, you’ll pay mortgage insurance premiums (MIP) for the life of the loan if you make a down payment of less than 10%. Otherwise, it comes off after 11 years.

Your interest rate is determined in part by a combination of your median FICO® score and the size of your down payment, so holding all other factors equal, a higher down payment should mean a lower rate.

Given this, the real answer to this question is that you should put down as much as you can comfortably afford without compromising other financial goals. Just keep in mind you’ll probably have to furnish the house, as well.

What Happens If My Appraisal Comes In Low?

It’s important to understand what your mortgage lender does when the appraisal comes back too low. A low appraisal can affect how much a mortgage company will loan you and how much you’ll have to pay out of pocket.

For example, if the home you want is $200,000 but is only appraised at $170,000, your mortgage lender will loan you the appraised amount and you’ll have to come up with the extra $30,000 on top of your down payment. Your other option is to try to renegotiate with the seller.