Do I Need a Down Payment to Buy a House?

• Real Estate Tips
• March 23, 2023

Potential Buyers Should Know How Down Payments Work

Buying a new home can be a significant expense, and most people can’t afford to pay for one upfront. That’s where down payments come in– they allow you to pay a small amount towards a mortgage loan to purchase a property. 

You do not need a down payment to purchase a home, however. Cash buyers typically can purchase the home upfront without an issue.

A down payment is a sum of money paid upfront to secure a loan when purchasing a house. This money signals to the lender that a buyer is financially stable and able to make payments on the loan. A down payment also reduces the amount of money that needs to be borrowed, resulting in lower monthly payments.

Generally, you will need to put down a minimum of 3.5% to 5% of the purchase price as a down payment for a home. Some lenders may also require a higher down payment depending on your credit score and other factors. If you are like most Americans, you will need a down payment to buy a house. Below are details about how a down payment works so you can understand exactly what to expect!

What is a Down Payment to Buy a House?

As mentioned above, a down payment is the money you put toward the purchase of a home. Generally, the down payment is a percentage of the total purchase price. The lender typically determines the down payment amount, usually between 3% and 20% of the home sale price. 

A larger down payment will typically result in a lower interest rate and a better overall loan. Buyers will pay the down payment at closing, and the funds go to the seller directly.

While 20% of the total home sale price can seem like a lot of money, not everyone needs that much for a down payment. According to the National Association of Realtors, the average first-time home buyer paid a 7% down payment in 2021. Only 25% of the buyers’ market had enough cash upfront to pay for a home without any financial assistance. This number indicates that most Americans need a mortgage to purchase property! 

What are the Pros and Cons of a Larger Down Payment?

Down payments are necessary because in some cases, they have the power to affect potential offers. A larger down payment can result in a lower interest rate, a more competitive bid, and more lenders may be willing to work with you. It also shows lenders that you are financially responsible and can make a substantial contribution to the purchase. 

Additionally, lenders may require a certain down payment amount before considering your loan application. While putting down a larger down payment amount has many benefits, there can also be disadvantages. Larger down payments require more money upfront, which can take time to save up. 

Also, if you can’t make the monthly payments on your mortgage loan, you risk foreclosure and losing your home. Consider all of these factors when making a future down payment!

Learn More About Down Payments and Cash Offers

Learn more about needing a down payment to buy a house from a knowledgeable Realtor! Contact Realtor Linda Moore for more information about property sales in your area.