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How much will your down payment on a house be?

A down payment is a minimum cash payment a buyer makes during the closing process to secure a loan on a home purchase. Down payment requirements vary for different types of loans, and can range from as low as 0% of the total purchase with a VA loan to as much as 20% or more for conventional or jumbo loans. Similar to your mortgage rate, your down payment amount will be determined in large part by your credit score, the purchase price of the home, and the type of loan you and your loan officer determine will help you the most given your circumstances.

The amount you need depends on the type of loan you get. Below are the six most common types of home loan options and their minimum down payment requirements.

Conventional loan
Minimum down: 3%
These loans are used for purchasing a primary residence, secondary home, or investment property. Though you can put down 3%, you will have to pay private mortgage insurance (PMI). It ranges in cost from 0.55% to 2.25% of the original loan amount per year and is broken down into monthly payments. It ranges in cost from 0.55% to 2.25% of the original loan amount per year and is broken down into monthly payments. Once you own 22% of your home, you can stop paying PMI. You can avoid PMI altogether with a 20% down payment.

FHA loan
Minimum down: 3.5%
Depending on your credit score, you may be able to secure a loan guaranteed by the Fair Housing Administration (FHA) with as little as a 3.5% down payment. FHA loans are available to people with lower credit scores (as low as 500), higher debt-to-income ratio (up to 50%), and with smaller down payments than some conventional loans allow. FHA loans allow the money for a down payment to come from a gift or charitable organization. Borrowers will need to pay an annual mortgage insurance premium (MIP) of between 0.45% to 1.05% of the loan amount – this fee will be paid annually but broken down into 12 payments and added to the monthly mortgage bill. If borrowers put down a 10% down payment, they’ll pay MIP for 11 years. If they put down less than 10%, they’ll pay MIP for the lifetime of the loan.

Jumbo loan
Minimum down: 20%
When someone needs a loan for more than conforming loans allow ($548,250 is most states), a jumbo loan is an option. Since they are too large to be guaranteed by Fannie Mae or Freddie Mac, qualifications to get this loan are tight and borrowers will need an excellent credit score. A 20% down payment is standard, but some lending institutions may require more.

USDA loan
Minimum down: 0%
These loans are designed to improve the economy and quality of life in rural America. If you’re buying a primary residence in a rural area, you may qualify for a USDA loan. You’ll need a credit score of 640 (though some lenders will offer loans for less) and meet income restrictions for the area you’re buying in. Borrowers will pay an annual fee equal to 0.35% of the loan balance (broken down into 12 monthly payments and added to the mortgage bill) as well as a one-time funding fee of 1% of the loan amount due when the loan closes.

The USDA provides this color-coded map to show which areas they classify as “rural”.

VA loan
Minimum down: 0%
If you’re an active member or veteran of the U.S. military (or a surviving spouse) you may be eligible for a Veterans Affairs (VA) loan. The VA doesn’t set a minimum credit score requirement for VA loan eligibility, but lenders typically will. Normally, it’s around 660, but you’ll need to check with your individual lender to see what their qualifications are. Borrowers will need to pay a one-time funding fee of 1.4% to 3.6% of the loan amount and can be paid upfront or rolled into the loan amount. There are no private mortgage insurance fees associated with a VA loan.

What’s the right down payment for you?
Finding the down payment amount depends on your financial goals, your loan eligibility, and other factors. Work with your loan officer at Mann Mortgage to identify the loan programs you qualify for and to help you decide which is best option for achieving your home buying goals.

Buying a house when you have student loan debt

More than half of all college students have taken on some form of debt in order to pay for their education – mostly through student loans. The average outstanding amount owed? Between $20,000 and $24,999. If you’re among those that have student loan debt, what are your options for getting a home loan?

How Do Lenders Look at Debt?
When issuing credit, lenders biggest concern is whether a borrower will be able to pay the loan back. They use a lot of calculations to figure it out. One of the major ones is to divide the borrowers’ monthly debts by their monthly gross income. This is called a borrower’s debt-to-income ratio.

To get an idea of your debt-to-income ratio, consider the amount you pay each month for your minimum credit card payments, auto loan, rent, mortgage, student loan, and other monthly payments. Keep in mind that lenders will look at what you pay each month, not the total amount you owe. If you have $20,000 in student loan debt and make $200 monthly payments, your lender will use the $200 monthly payments in the calculation. Now, divide the amount you pay each month by your gross monthly income (before taxes and other deductions). This is your debt-to-income ratio.

Generally, lenders want to see, at a minimum, a ratio of 50% or less.

Should You Pay Down Your Student Loans Before Getting a House?
Thinking about waiting to purchase a home until your student loan debts are paid down can feel like putting your life on hold. Whether you should pay off or down your student debt really depends on your unique financial situation. The price of a home ownership far exceeds just the monthly mortgage bill. There’s insurance, property taxes, utilities, maintenance, and plenty of small expenses. On the flip side, making a wise investment in a home could provide you with financial stability in the right real estate market.

Speak openly with your home loan officer to decide whether now is the right time for you to invest in a home. They’ll be able to give you expert advice about your real estate market, interest rates, and financial requirements for loans you may qualify for.

What Home Loans are Available to People with Student Debt?

Many loan options are available to people regardless of the type of debt they have. Some favorites among young borrowers with student loans are conventional, USDA, VA, and FHA loans.

Conventional loans
If you have decent credit and can make a down payment of at least 3.5%, a conventional loan will offer you many great benefits including PMI fees that stop once you reach 22% equity in your home.

USDA loans
If you’re looking to purchase a primary home in an area defined as “rural” by the USDA, a USDA loan is a great choice. Chief among the benefits for those with student loan debt is a 0% minimum down payment and no private mortgage insurance fees.

VA loans
Another great 0% down payment option for those who are former or current members of the U.S. military. VA loans are available to fund the purchase of primary residences only.

FHA loans
If your credit has been diminished by student loan payments, consider an FHA loan. They’re available to borrowers with FICO credit scores as low as 500. You’ll have to make a down payment of 3.5 to 10% depending on your credit score, but it may be a good option to start building financial stability with a home.

Should You Buy A Home Now?
Depending on your financial goals, taking advantage of the low interest rates might be a great choice. Contact your local loan officer to help you make the decision about whether you’re ready for home ownership or if it would be more advantageous to wait.

Why are VA loans are 0% down?

Department of Veterans Affairs (VA) loans are available to current and previous U.S. military service members and their spouses for financing a home. The loan is given by an independent mortgage company or bank, and the Department of Veterans Affairs guarantees a portion of the loan will be paid back if the borrower defaults. That guarantee makes VA loans less risky for lenders and it is what allows it to be offered without a down payment requirement by your mortgage lender.

Are VA loans a good deal?
Like all loans, it depends on you and your financial situation. There are some benefits to VA loans that many people may want to take advantage of while other veterans may find a different type of loan works better for them. The chief benefits of a VA loan are:

  1. You don’t need a down payment
  2. You don’t need a perfect credit score
  3. You can have a higher debt-to-income ratio
  4. You don’t need to pay monthly mortgage insurance
  5. There’s no limit to the loan amount
  6. It can be used to purchase a second home with no down payment (it’s called the VA bonus entitlement)


The catch
With all good deals, there’s a catch. For VA loans, you’ll have to pay a small funding fee (2.3% if you put 0% down) to offset the loan program. This is a one-time fee that will be paid at closing or rolled into the mortgage amount (which will increase the monthly payments and interest paid over the life of the loan). This fee is waived for anyone with a service-connected disability.

Should you get a VA loan?
Whether a VA loan is right for you depends on your unique financial situation. If you have money for a down payment, you may be better off getting a different type of loan. Contact your local loan officer and together you can go over your options and pick the best one for you.

What are mortgage points and when should you buy them?

After negotiating the price of a new house and being approved for a home loan, some people opt to purchase mortgage points to lower the interest rate and save on the overall cost of their loan.

Mortgage points are a fee a borrower can pay their mortgage lender to lower the interest rate on their home loan. Each point lowers the interest rate around 0.25% and costs 1% of the mortgage amount. The points are paid for when the loan closes. A full point, multiple points, and even fractions of points can be purchased.

When Should You Buy Mortgage Points?
There’s a “break even” point on mortgage points. It’s when you’ve saved more in payments than you paid for the points. Typically, it takes a few years for that to happen. Do the math for your mortgage and make sure you’ll be in your home at least as long as it’ll take for you to break-even.

When Shouldn’t You Buy Points?
Generally speaking, if you have enough cash to purchase mortgage points, you may be better off putting that money towards your down payment instead. A larger down payment could get you a lower interest rate, reduce the amount you’d pay for mortgage insurance (or eliminate it all together), or reduce your monthly payment.

Mortgage points are a long-term strategy to save money, so if you don’t plan to be in your house long they may not be worth the cost. If you’re interested in mortgage points, talk to your local home lender. They can run all the scenarios to see how best to pay off your loan.

Homes for Heroes: Helping certain professionals with homeownership

Buying a home is an exciting, stressful, and emotional experience. If you’re a teacher, nurse, healthcare worker, law enforcement officer, firefighter, military member, or veteran, there are programs to help you make homeownership a little easier. It’s called Homes for Heroes. Since 2002, they’ve helped more than 44,000 people with their homeownership goals.

Homes for Heroes, Inc.
Homes for Heroes is a for-profit company that works with affiliate real estate agents, home lenders, title companies, and home inspectors. They say their mission is to, “provide extraordinary savings to heroes who provide extraordinary services to our nation and its communities every day.”

Eligible participants can receive thousands of dollars in refunds when they work with the program and use the affiliate real estate companies. It’s a good program for home buyers who qualify as there is no catch to it. The organization is able to fund itself through fees paid by the real estate professionals who take part in the program. It’s basically a paid referral program that benefits a select group of home buyers and owners.

Homes for Heroes Foundation
It’s the non-profit side of the company. Homes for Heroes, Inc. donates a portion of its earnings to support the foundation. The foundation then uses those funds (and private donations) to give “Hero Grants” to nonprofit charities that serve heroes in need. From 2009 to 2020, they awarded $842,838 in grants.

A lot of professionals are eligible
Whether you’re a current or former professional, you will likely qualify if your career is listed below. Other types of careers are eligible as well, so speak with your local home lender if your profession is similar to any listed below:

  • Firefighter
  • Paramedic
  • EMT
  • Law enforcement
  • First responder
  • Active military
  • Nurse
  • Doctor
  • Health care professional
  • Educator
  • School administrator

It’s an easy program to use
You can ask your real estate agent or home town lender whether they’re part of the Homes for Heroes program. If they are, they’ll work with you to make you meet the eligibility requirements and all paperwork is completed for you. The more Homes for Heroes-approved professionals you work with, the bigger the refund you’ll receive.

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