Finding the right deposit
How Much Down Payment do you need for a $ 300,000 home?
It all depends on the type of mortgage you choose.
For some, it might literally be nothing – not a penny.
However, most will require at least 3% ($ 9,000) or 3.5% ($ 10,500) of the purchase price. And when you have 20% less ($ 60,000), you can save yourself thousands on mortgage insurance and mortgage interest.
It's all about finding the right deposit amount for you. Here is how.
See if you qualify with a small deposit (April 12, 2021).
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Down payment requests for a $ 300,000 home
The amount of down payment you will need depends on the type of mortgage loan you choose.
Here are the minimum down payments on various $ 300,000 home home loans:
VA Loan: USD 0 (0%) – Available only to service members and veterans who have reached the minimum service thresholds. Surviving spouses can also applyUSDA Loan: USD 0 (0%) – You must be shopping in a specific rural area and have low to moderate income for the area you are buying fromCompliant Loan: $ 9,000 (3%) – A loan that meets Fannie Mae and Freddie Mac's requirements, including a minimum credit rating of 620FHA Loan: $ 10,500 (3.5%) – Supported by the Federal Housing Administration. Your credit score can be as low as 580 when you have a 3.5% down paymentConventional Loan Without PMI: $ 30,000-60,000 (10-20%) – If you want to avoid private mortgage insurance (PMI) you need to save 20%. However, you may find lenders who can take out a second mortgage to fill the gap between your savings and that 20%. More on this below
All of these are of course minimum values. And as a rule, the more cash you put in, the lower your interest rate is likely to be.
But even if you hit 3% or 3.5% less, you may have options.
Down Payment Assistance (DPA) programs exist across the country. And these can help with grants or loans to meet some or all of your down payment needs. Some even add to the closing costs.
These programs can bring home ownership within reach for first-time buyers who can easily afford mortgage payments but struggle to save on upfront costs.
Check your eligibility for low down payment mortgages (April 12, 2021).
What is the minimum amount YOU can wager?
The mortgage you can get depends largely on your personal circumstances.
We have already mentioned some of the restrictions on certain loans. But let's dig deeper into the requirements for low and zero down mortgages.
VA Loan ($ 0 Down)
To get a Zero Down VA Loan (backed by the Department of Veterans Affairs), you will need a Certificate of Eligibility. And the VA has strict rules about this.
Veterans, active duty members, National Guard members, and reservists typically qualify – along with some surviving spouses.
You also need an "acceptable" credit history. Some mortgage lenders are happy with a credit score of 580, but many want 620-660 or higher. Browse around when your score is low.
Check Your VA Loan Eligibility (April 12, 2021)
USDA Loan (USD 0 Down)
USDA mortgages are supported by the US Department of Agriculture as part of its rural development program. Like the VA loan program, USDA allows a 0% down payment (although you will still have to pay the closing costs out of pocket).
You must be shopping in a suitable rural area to qualify. However, your profession does not have to be linked to agriculture in any way.
You must also have an income that is low or moderate for the area you are buying in. Not sure if it's yours? Use this reference tool to verify that you qualify.
Experian: “While the USDA has no set credit score requirements, most lenders offering USDA Guaranteed mortgages require a minimum score of 640. This is the minimum credit score you will have for one Automatic approval must be authorized by the USDA's automated subscription system. "
However, some USDA lenders may allow values below 640 with "offsetting factors" like a lower debt-to-income ratio (DTI) or a higher down payment.
Check Your USDA Loan Eligibility (April 12, 2021)
Compliant Loans ($ 9,000 less)
Fannie Mae and Freddie Mac (the agencies that set mortgage compliance rules) require a deposit of only 3% of the purchase price. That's $ 9,000 for a $ 300,000 home – the lowest value unless you're eligible for a VA or USDA no-deposit loan.
The minimum credit requirement is 620 for a compliant loan.
But (and you've discovered a topic here) individual lenders may set higher minimum requirements. So, look for a more flexible lender if you get rejected with a FICO score above 620.
If you can qualify, compliant loans may be better than FHA's. This is because you can stop paying mortgage insurance once your equity (the amount by which the market value of your home exceeds your mortgage balance) reaches 20%.
With FHA, you will continue to pay mortgage insurance premiums until you sell, refinance, or pay off your loan.
If you can bet at least 20% on a compliant loan right away, then you don't have to pay mortgage insurance (PMI) at all.
Check Your Compliant Loan Eligibility (April 12, 2021)
FHA Loan ($ 10,500 Down)
The smallest down payment you can make on an FHA loan is 3.5% – or $ 10,500 for a $ 300,000 home. That's a little higher than compliant loans.
And as mentioned earlier, with FHA loans, you will have to pay mortgage insurance premiums until you sell, refinance another type of mortgage, or usually just repay the loan after 30 years.
Why do so many people choose this one?
Mainly because FHA allows credit scores as low as 580 (or 500 if you can drop 10%). Often times, an FHA loan can be a shortcut to home ownership. And if you're moving or refinancing in the next few years, those mortgage insurance payments won't be that big of a deal.
Often times, an FHA loan can be a shortcut to home ownership. And if you're moving or refinancing in the next few years, those mortgage insurance payments won't be that big of a deal.
Check Your FHA Loan Eligibility (April 12, 2021)
Conventional Loans ($ 15,000 to $ 60,000 less)
Most conventional loans fall into the conforming loan category regulated by Fannie Mae and Freddie Mac. The least you can do with it is 3 percent.
The next step for a conventional loan is a 5% decrease over a single family home. That would be $ 15,000 for a $ 300,000 home.
However, with a 5% decrease, you pay mortgage insurance until your equity increases to 20%. In this situation, other types of mortgages may be more attractive.
How much you actually pay for PMI depends on factors like your credit rating and down payment. Your mortgage offers ("loan estimates") will give you an exact amount.
Some homeowners avoid PMI by taking a traditional "piggyback" loan that allows you to cut 10% and borrow another 10% through a home loan. Together, your down payment and your second mortgage equate to a 20% down payment – so you don't have to pay a PMI.
If cash isn't a problem, you can save 20% right away. That's $ 60,000 out of pocket for a $ 300,000 home.
This will give you the lowest mortgage rate and will allow you to lower your monthly mortgage payments as well as your overall interest costs.
Review Your Traditional Loan Options (April 12, 2021)
Jumbo loans are mortgages that go beyond the usual credit limits. With jumbo financing, you can buy millions of dollars in loan for those who want and can afford swanky houses.
Jumbo mortgages do not affect those who buy $ 300,000 worth of homes. However, most borrowers have to pay at least 20% of the purchase price for interest.
Should I bet 20% on a $ 300,000 home?
When does 20% make sense as a down payment on a $ 300,000 home? The short answer is if you can afford it.
When you save 20% on a home purchase you get real benefits because:
You don't need to take out mortgage insurance. You will likely get a lower mortgage rate than those with lower down payments. You have lower monthly payments because you borrow less. Your loan amount is $ 240,000 with 20% less than $ 291,000 with 3% less. You have a far lower total cost over the life of the loan. You may have a little leeway in your application
For example, let's say a lender wants a minimum credit rating of 700. You could get away with a rating a few points below if you cut 20%.
Be patient and think about your options
Of course, relatively few first-time home buyers can scrape together 20 percent. And if you can't, it's no big deal.
Monthly payments and home price inflation can help bring home equity to 20%. The next time you move or refinance, you may get all of these permissions.
There are even arguments against 20% for a new home. Read this before paying a 20% deposit. Read this before you decide what is right for you.
If you buy real estate primarily as an investment, there may be good reasons to keep your down payment down.
Advance payment assistance
For example, let's say you don't have the down payment on a $ 300,000 home. We previously mentioned Down Payment Support (DPA) programs. There are thousands of these across the country, and at least one will cover the area you are buying from.
Each DPA program is independent and can set its own rules. As a result, we cannot tell you exactly what help you might get. But it's likely one of the following:
A low-interest loan that you pay back in parallel with your mortgage. A forgivable loan that does not have to be paid back if you stay in the house for a certain number of years. A direct grant that never has to be paid back
Some also contribute to the closing costs. And it's worth noting that lenders are generally very cool with DPA. They know everything about these programs and usually approve them.
Gifts from family and friends
Still tight on a $ 300,000 home? Lenders tend to be just as cool when it comes to down payment gifts from family members. But some disagree with gifts from people who are not family members. Ask about your lender's guidelines.
And be aware that all of these gifts come with rules. The most important thing is that the money you receive needs to be a true gift, not a loan in disguise. And your donor will need to provide a mortgage gift letter confirming that this is the case.
You must also document the money transfer. So, you need to identify the source of the money as well as the money that leaves your donor's account and arrives with you.
What is the monthly payment for a $ 300,000 home?
We can turn to The Mortgage Reports mortgage calculator to model the monthly payments for a $ 300,000 home.
Note: The following examples include only capital and mortgage rates. We ignore things like property taxes, homeowner insurance, and homeowner association membership fees because they vary so widely from place to place.
VA Loan Payment: $ 1,336 – Zero down and a rate of 3.25% (no mortgage insurance)USDA loan payment: $ 1,407 – $ 1,319 plus $ 88 mortgage insurance with a zero drop and a 3.25% interest rate3% deposit according to loan payment:: $ 1,581 – $ 1,266 plus $ 315 mortgage insurance with a 3% decrease and an interest rate of 3.25%FHA Loan Payment: $ 1,491 – $ 1,282 plus $ 209 mortgage insurance with a 3.5% decrease and an interest rate of 3.25%20% Down Payment for Compliant Loans: $ 1,044 – 20% less and a rate of 3.25% (no mortgage insurance)
The calculators allow you to model your own options based on today's mortgage rates.
We used the same mortgage rate (3.25%) for each example. However, different types of mortgages have different interest rates. And mortgage rates may have changed by the time you read this.
We have also stated the minimum down payment for a home of $ 300,000 each. However, you can enter anything you have saved.
Choosing the right deposit amount for you
Phew! That was a lot of information. But you are now much better equipped to decide which type of mortgage is best for you.
Of course, many – perhaps most – home buyers have limited options. Because you cannot get a zero down payment loan unless you are entitled to one. And you can't get a Fannie or Freddie loan unless your credit score is 620 or better.
Equally important, unless your savings add up to a 20% down payment or you qualify for a VA loan, you cannot get mortgage insurance.
So many will find that their circumstances reduce their decisions to one. And those with two options left with one eye on mortgage insurance and the other on monthly payments.
You can easily find out what your options are by obtaining pre-approval from a mortgage lender.
Check your new plan (April 12, 2021)