So why do you need to know how much money it will take to purchase a home? One important reason is that you don’t want to get yourself and your family excited about a particular home only to find out that it is out of your reach because you don’t have the proper resources for the down payment.
There are three main loan types that people use to purchase a home—FHA, VA, and conventional.
FHA is the most common one used by first-time home buyers. FHA loans require a down payment of at least 3.5 percent.
VA loans require that you have served in our military. If you are eligible for a VA loan, then you can get into a home with no down payment.
Standard conventional loans require a down payment of at least 5 percent. There are currently some conventional options that we offer which only require a 3 percent down payment. These options have come and gone a couple times over the last 10 years. I am going to show you the 5 percent down payment option for conventional loans in the chart below.
Here’s a chart that shows the down payment requirements for each of the three main loan types at different purchase prices:
To see how much money you will need to qualify for your first home:
- Start with what the purchase price is for the type of home you are looking for.
- Figure out which kind of loan you are likely to get. VA is normally the best option if you qualify. If you don’t have any VA eligibility, then FHA is going to be the most common loan type for first-time home buyers.
- Use the above chart to see how much money you will need for a down payment.
No need to worry or take yourself out of the preapproval process if you don’t have the amount you need saved up yet. There are several creative ways to come up with the money for a down payment on your first home.
Here are the most common sources of funds for the down payment:
- Checking or savings accounts
- Cash on hand—This one is a little tricky, but we can pull it off with enough advance notice. Let us know if your funds are in cash so we can coach you on how to properly document it to the underwriter.
- Retirement accounts
- Stocks and bonds
- Private savings clubs
- Down payment assistance programs
- Secondary financing
- Employer assistance
- Sale of personal property
- Real estate commissions
- Sweat equity
- Rent credits
- Gifts of equity