Down Payment on a House: What Is the Ideal Amount to Put Down?

If you’re thinking about buying a home, you have probably wondered how much of a down payment on a house you will need if you want to be approved. However, there’s more to this question than just a quick simple answer. Therefore, it’s in your best interest to learn everything you can about how much of a down payment on a house you will need before you begin the house hunting process.  So let’s start by talking about how much of a down payment is considered the ideal amount and why. Then we’ll go over some of the different tactics you can use to come up with a down payment for your new home.

What Is The Ideal Down Payment On a House?

The short answer is 20 percent. Putting 20 percent down on a home is what’s preferred by most lenders. This was the requirement for many years until the mid-2000’s when sub-prime lenders were accepting just about any applicant regardless of how much they put down, their income or their ability to repay that mortgage. And that’s when all the trouble began, which led to the housing bubble bursting just a few short years later.

Why Is It So Important To Put 20 Percent Down On a Home?

Well, there are plenty of reasons to put 20 percent down on a home. For starters, putting 20 percent down will improve your chances of being approved for a mortgage loan. There are actually many banks who won’t even consider you for a mortgage unless you put the required 20 percent down.

Another reason is because the Consumer Financial Protection Bureau recently issued a requirement for what they consider “qualified mortgages.” The new standard is that homeowners will now have to meet a 43 percent debt-to-income ratio to qualify for a home loan. That means you have to add up all your debts, including your mortgage payments and property taxes, then your total debt must be less than $43 for every $100 you make per month. This is why putting down 20 percent is so important, because doing so reduces the size of your monthly mortgage payments, which in turn will make you more likely to qualify and be able to afford your mortgage.

When you put a 20 percent down payment on a house, you will generally receive a lower interest rate as well, which will save you thousands of dollars or more over the life of your loan. Additionally, by putting 20 percent down, you will also be able to avoid having to pay the private mortgage insurance (PMI) that’s required on any loan that’s approved with less than 20 percent down. One last reason you should strive to put at least 20 percent down on your new home is by doing so you will be able to build up the equity in your home immediately versus paying on your mortgage for years before your payments add up to even the smallest amount of equity.

Do I Have To Put a 20 Percent Down or Are There Other Options?

Well that depends on how much of a credit risk you are, if you qualify for the amount you are applying for, and of course your credit score, among other varying factors. But technically, no, you don’t have to put a 20 percent down payment on a house. Although, as we mentioned above, it is in your best interest. However, there are several mortgage lenders who don’t require you to put 20 percent down and they are as follows:

• The Federal Housing Administration or FHA
• The U.S. Department of Veterans Affairs or VA
• The Navy Federal Credit Union
• The USDA’s Rural Development mortgage guarantee program

What Are Some of the Best Ways To Save for a Down Payment?

What a great question! We’re glad you asked. There are plenty of tactics you can use to save for the down payment on your new home. And most of these tactics will only require you to make a few small lifestyle changes. Lifestyle changes you will probably hardly even notice once you implement them.

1. Open a savings account specifically for your down payment funds. Then every time you pay a bill (or more often if you can), put something into that account no matter how small of an amount it is.

2. Get your bad habits in check. Look over your monthly bank statements and highlight all the small purchases you make on a daily basis that you really could do without if you tried. For example, Do you really need to hit the drive through every morning for breakfast? Do you really need a latte every afternoon? Do you eat out for lunch? How many times per week do you go out for dinner? Do you really need to buy all the name brand products at the store or could you re-adjust your habits by buying generic or store brands?

Once you add up how much money you actually waste each month, you are going to be shocked. Most people never pay much attention to the small purchases they make on a daily basis. However, it’s these small purchases that do the most damage. But the good news is these are the money wasting habits that are the easiest to break. And once you do, you will not only feel better, you will probably also find yourself looking for other little ways to save, because you will have become addicted to saving money.

3. Begin cutting coupons and looking for other similar money saving measures. Cutting coupons is self explanatory; however, it’s a great way to save and those little bits of money can really add up over time. You should also sign up for your favorite merchants rewards programs and use them every time you make a purchase.

Check into money saving websites such as ebates.com and other similar websites that give you cash back on your purchases. And before you buy anything, always actively seek out discounts on the internet using websites such as retailmenot.com. You can almost always perform an internet search for anything you want to buy and several discount coupon sites such as retailmenot.com will pop up showing you all the available coupons for any given merchant. These sites will save you loads of money, but you have to actively seek out these discount offers; otherwise, you won’t get them.

4. Start giving handmade versus store bought gifts. People love receiving handmade gifts and it shows you cared enough to take the time to personally make something you know that person would like and that’s always appreciated.

5. Save all your raises, bonuses, and income tax refunds. This is a great way to save money for your down payment because it’s money you didn’t have previously, and therefore you won’t miss it.

There are plenty of other ways to save if you want to put a 20 percent down payment on a house. Additionally, once you start saving by making a few small lifestyle changes, you will be surprised at just how quickly that money adds up. And before you know it you will be living in and enjoying your new home.

2 Point Highlight

1. If you’re thinking about buying a home, you have probably wondered how much of a down payment on a house you will need if you want to be approved.

2. It’s in your best interest to learn everything you can about how much of a down payment on a house you will need before you begin the house hunting process.