How Much Should I Put Down For My First Home Down Payment?

As you may have heard in the news, the mortgage industry has been turned on its head in the last year or so.  Gone are the days of 100% financing (with few exceptions).  Gone are the “stated income” loans and we are getting back to basics.

As you think about your first home purchase, financing can be one of the most confusing topics.  For first time home buyers there are still lots of loan options available.  The lowest down payment loan out there is called an FHA mortgage.  This is a loan that is insured by the government, thus banks are willing to loan a larger percentage of the value of the property.  Currently with this type of mortgage you will need a 3.5% down payment.  With an FHA mortgage when you make your monthly payment every month you are actually paying for five separate expenses: principal, interest, property taxes, home owners insurance, and mortgage insurance.

In order to avoid the cost of mortgage insurance every month you can choose to put down a 20% downpayment.  This is called a conventional loan.

So for you first home, if you can swing it, it is best to put down 20%.  For most people, however, this is just not realistic and they opt for the more affordable 3.5% downpayment.

Photo Source: American Mortgage Relieft Services