What is the minimum down payment for a mortgage loan?

One of the most frequent questions among first time home-buyers is “what is the minimum down payment for a mortgage loan?” In reality, there is no minimum down payment for a mortgage loan. There are mortgage loans with no down payment, or with the down payment rolled into the mortgage loan. But whether or not you’ll qualify for a low down payment mortgage loan or get an advantageous interest rate is the bigger question. Here are some things to consider:

Private Mortgage Insurance (PMI)

In terms of minimum down payments for mortgage loans, the figure 20 percent gets kicked around a lot. That’s not a minimum down payment for a mortgage loan period, that’s the minimum mortgage loan down payment you’ll typically have to pay to avoid paying Private Mortgage Insurance (PMI). PMI is a protection for the lender that ensures that they don’t lose money if you default on your loan, and if you can‘t front a big down payment, it means that you’re at a higher risk for default. Private mortgage insurance payments come out of your own pocket and are paid upfront when you close the loan and once a month until you owe less than 22 percent or so on your home.

There are ways to avoid PMI without putting down 20 percent on your home mortgage, such as getting a piggyback loan, but in general, it’ll cost you less in upfront fees and in the long run if you put down 20 percent and avoid those PMI premiums.

Higher Down Payment Equals Lower Interest Rates

The bigger your down payment, the lower your loan amount, thus the lower interest rate you’ll get and the lower your overall payments over the life of the loan. In terms of long term savings, it’s always better to borrow less. There are such things as no down payment mortgages, where the lender simply rolls the closing costs into the mortgage, but this will cost you much more in the long run.

Federal Housing Authority Loans

Some of the best loans you can get are mortgages that are backed by the Federal Housing Authority (FHA). FHA loans are guaranteed by the government, thus have lower interest rates. The FHA requires those with credit scores of 580 or less to make a minimum down payment on their home mortgage of 10 percent in order to qualify. Borrowers with credit scores above 580 can put down as little as 3.5 percent. However, if you make a home mortgage down payment of less than 5 percent, you’ll have to buy mortgage insurance, which comes with an upfront premium payment as well as annual premium payments.

Conclusion

The bottom-line is that there is no minimum home mortgage down payment - but you have to balance your monthly financial obligations with the long term costs of a larger loan. In general, homeowners benefit from putting down a home mortgage that’s as high as they can afford, while accounting for their other expenses, such as investments, emergencies and savings. While it may be tempting to get very low or zero percent mortgage down payment, it behooves you to run the numbers through a mortgage calculator to see how much extra you’ll be spending over the next 30 years.