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Ask A Realtor: How Much Down Payment Do We Need?

My husband and I are looking to purchase a home before our first child is born this summer. However, we don’t have a lot of savings for a down payment. How much do we actually need for a down payment? So far, we only have about $4,000 saved.

There are three basic types of loans commonly used today, and all three have options for a down payment of 5% or less. I’ll give you a quick summary that I think will answer your question.

FHA – You can purchase a home with FHA financing if you have at least 3.5% for a down payment and anything better than terrible credit. There is also an option to use CHFA down payment assistance in Colorado which allows you to purchase a home for as little $1,000 down. An additional benefit to FHA financing is that gift funds are allowable for the down payment.

VA – If you have ever served in the United States military you may be eligible for a VA loan.  (Basic eligibility info is available here.)  VA loans allow for no down payment at all.  In most cases, if you are eligible for a VA loan it will be your best option unless you have 20% down and good credit at which point you’ll want to consider conventional financing.

Conventional – If you can come up with at least a 5% down payment and have very good credit, you’ll want to consider conventional financing. Keep in mind that you’ll have mortgage insurance unless you have a 20% down payment, but it is typically preferable to FHA if you qualify.

Of course, there are nuances to everyone’s specific situation that need to be accounted for when deciding on financing. It should also go without saying that the greater your down payment, the less risk you’re taking on. The above information is simply a summary of what is available, and shouldn’t be construed as my endorsement of particular options.

Jeremy Isaac is a Colorado Springs Realtor at The Circa Group at RE/MAX Properties.  If you’d like to see your real estate-related question featured here, contact him or leave a comment!

For more answers to real estate questions, view the Ask A Realtor archives.

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Comments

  1. Correct answer: 100% down

  2. That’d be great, but not realistic for many people on home buying. :) I think you should look closely at your finances and see what you can afford going into home buying on your budget, realizing that there will be additional costs for repairs, increases in utilities, etc. as you run your numbers. You likely won’t get your dream house, especially with your first house, but at least you can get something that won’t weigh you down financially. There are some great first time home buyers programs out there that can allow you a reduced interest rate, etc. Look into those and take advantage of the help they give you in looking to see what your budget allows. Robert Irwin has a great book about buying a home and has some great advice. Good luck!

  3. Hello, we are getting our house ready to put up for sale in the next couple months. I let the lawn go last summer and fall (thinking it would rain one, which it never did) and now it looks like I probably need to re-sod the whole yard, or at the very least the back yard.

    My question is, should I go ahead and have this done now (I’m not even really sure how much it costs) or just put the house up for sale with a not-so-great looking yard and be willing to drop the price a little if someone who wants to buy the house asks about it?

  4. My husband and I used CHFA when we bought our home 7.5 years ago. They gave us $3000 for a down payment (since we had next to nothing). Our realtor informed us that if we stayed for 7 or more years that we would not have to pay that back, and if we moved before that 7 year mark, we would need to pay back a percentage of the $3000. (If we stayed for 3.5 years, we’d pay back half of the money) Unfortunately, we found out about 6 months ago that that wasn’t true. That $3000 was treated as a second mortgage that we will have to pay back when we move. I’m glad we had the money for the down payment, but this is a huge setback for us. CHFA is helpful, but make sure you know the terms of the contract.

    • Rachel,

      CHFA has changed over the years from a grant, to a “silent second” mortgage (your situation), to a typical second mortgage. That’s likely the reason for the confusion, though it doesn’t excuse your lender or realtor for not explaining it properly.

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