How Do Down Payment Mortgages Work?

5 March 2023

Down Payment Mortgage Requirements
The amount of a down payment needed for your mortgage depends on the purchase price and loan program selected. Generally, buyers need to put down between 5% and 20%; however, in some cases a lower amount may be needed. Whether it’s necessary for you to make larger or smaller contributions, there are ways to meet those obligations without breaking the bank.

Your Down Payment Can Help You Cut Costs
A higher down payment can save money on other costs associated with homeownership, like property taxes and maintenance fees. Additionally, it helps avoid paying private mortgage insurance (PMI) and may enable you to receive a lower interest rate on your loan.

Your Down Payment Can Protect You
A larger down payment gives you more equity in your home than if you put less down, which could save money on other expenses and keep debt low over time. Furthermore, making a large down payment protects against losing your house during a market crash.

Your Down Payment Can Make You a Less Risky Borrower
A higher down payment usually leads to a better credit rating, which in turn allows for lower interest rates and fees. But remember, making too much of a down payment could increase your debt load and make it harder to pay off the mortgage quickly; so weigh all the advantages against potential drawbacks before deciding to put down more than what you can afford.

Your Down Payment Can Be Scheduled
If you have the capacity, consider setting up an automated plan to contribute money towards your down payment fund. This could be done in various ways such as setting up deductions from your paycheck or using financial gifts, tax refunds, bonuses or inheritance.

Down Payment Assistance
Many states and nonprofits offer programs to aid first-time homebuyers. These may take the form of a down payment grant, loan or matched savings program.

Your eligibility for down payment assistance will depend on your income and credit history. Speak with a lender or local housing counselor to understand all of your available options.

Alternatively, you can deposit your down payment into an individual development account (IDA), also known as a matched savings program. These accounts are created by banks, government agencies and community organizations who will match a portion of your savings with their own resources.

These funds can be used for a down payment, closing costs or other mortgage-related expenses. In some cases, you may even be able to use the money for renovations related to your home that were funded with your down payment.

A matched savings account can be an efficient way to make a down payment, particularly for those with limited resources. However, if you plan to use a gift as part of the down payment, make sure the donor signs a legal document guaranteeing its responsible use.