One of the top concerns that first time homebuyers have is how much money they should put down on a new house. The number that always gets thrown out there is 20 percent, and even in the San Diego real estate market, that can be a lot of money for people to have to put down on a house.

Just to put the percentage into a real number, 20 percent of a house that costs 300,000 dollars equates to 60,000 dollars as a down payment. Even for a homebuyer who has a stable job and a good amount in savings, this kind of money is a huge investment that many people either cannot or are unwilling to make.

The Good News

The good news that many people don’t know is that you don’t have to put 20 percent down on a house (not even close). Most people can get a new home for as little as 3.5 percent down.

And 3.5 percent of of 300,000 dollars is only 10,500 dollars, a much more reasonable sum for most people.

So How Much Money Should You Put Down?

The answer to this question is contingent upon a few things, the first of which is what type of loan you can qualify for. If you want to qualify for a conventional mortgage (a 30-year fixed rate mortgage), you will need to put down more than five percent of the total cost of the house.

Anything under this amount will require you to get a Federal Housing Administration (FSA loan). In order to get a conventional loan, you will need to have a slightly higher credit rating, so how much you put down may not even affect your mortgage if you only qualify for an FSA loan.

The Benefits of the 20 Percent

If you have a conventional loan and are able to make the 20 percent down payment, you will be able to avoid paying Private Mortgage Insurance. PMI is a the lender’s insurance that you will pay back the loan that they give you. You essentially pay a premium that will guarantee that the lender will get their money back should you become unable to pay your mortgage and foreclose. Getting rid of your PMI payments can help you to lower your monthly mortgage payments significantly.

If you have an FSA loan, no amount of money you put down on a house will eliminate the PMI payments that you have to make.

Something to also keep in mind is that the more money you put down on a house, the less you will pay in total interest over the life of your mortgage. However, we don’t recommend clearing out your bank account just to make the payment. You should always keep some money put away for emergencies.

Find the Right Real Estate Agent

Still have more questions about down payments? The experts at Metro San Diego Realty are here to answer them for you. Contact us today to find out more about down payments, mortgages and more.

Posted by Jason Coriano on


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