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Down Payment Information

What is a Down Payment?

A down payment is an upfront payment you make when purchasing a home. It's calculated as a percentage of the home's purchase price and directly impacts your loan terms and monthly mortgage payments.

Minimum Down Payment Requirements

Below are the minimum down payment requirements (not including Down Payment Assistance*):

• Conventional Loans: As low as 3% of the sales price
• FHA Loans: As low as 3.5%.
• VA Loans:       No down payment required for eligible borrowers.
• USDA Loans:       No down payment required in eligible rural areas.
  

Programs are available for qualified homebuyers, including:

• State or local government grants.
• Employer-sponsored programs.
• Nonprofit organization support.
  

Benefits of a Larger Down Payment

• Lower monthly mortgage payments.
• Potential for a lower interest rate.
• Avoid private mortgage insurance (PMI) on conventional loans.
• Build equity faster.
• More attractive offer in a competitive market.

How to Save for a Down Payment

• Setting a specific goal.
• Automating savings.
• Cutting discretionary expenses.
• Exploring side hustles or extra income sources.

Credit Readiness

Being credit-ready is an important step in the homebuying process. We’re here to help you understand your credit and strengthen it, ensuring you qualify for the best mortgage options.

1. Understand Your Credit Score

• Check your credit score from all three major credit bureaus (Experian, Equifax, TransUnion).
• Know what score range is ideal for your loan type (e.g., 620+ for conventional loans, 580+ for FHA loans).
• Ensure your score meets or exceeds the lender's minimum requirement.

2. Review Your Credit Report

• Obtain a free credit report from AnnualCreditReport.com.
• Verify all personal information (name, address, Social Security number).
• Look for errors or inaccuracies in account details or payment history.
• Dispute any errors with the credit bureaus immediately.

3. Evaluate Your Payment History

• Ensure you have no recent late payments (in the past 12 months).
• Confirm all past-due accounts are resolved or paid off.
• Avoid new missed payments before applying for credit.

4. Assess Your Debt-to-Income Ratio (DTI)

• Calculate your DTI: (Monthly Debt Payments ÷ Gross Monthly Income) × 100.
• Target a DTI of 43% or lower for most loan programs.
• Pay down high-interest debt to improve your DTI

5. Build Credit (if Needed)

• Maintain a mix of credit types (e.g., revolving credit like credit cards and installment loans like auto loans).
• Avoid opening multiple new accounts at once.
• Ensure consistent, on-time payments to build credit history

 6. Avoid Major Financial Changes

• Refrain from applying for new credit or loans before applying for a mortgage.
• Avoid large purchases that might increase your debt.
• Keep current credit card balances low.

7. Save for the Costs of Borrowing

• Have sufficient funds for a down payment (if required).
• Prepare for closing costs (typically 2%-5% of the loan amount).
• Maintain a financial buffer for unexpected expenses.

8. Avoid Red Flags

• Minimize credit inquiries (e.g., avoid frequent applications for new credit).
• Address any derogatory marks on your credit report (e.g., collections, judgments, bankruptcies).
• Stabilize your income and job situation before applying for credit.
  

9. Seek Professional Guidance

• Consult with a mortgage lender or credit counselor for personalized advice.
• Consider pre-approval to understand your loan options and creditworthiness.
• Use online tools like affordability calculators to assess readiness.

10. Stay Disciplined During the Application Process

• Keep your credit utilization below 30%.
• Pay all bills on time, including utilities and rent.
• Avoid financial behaviors that could negatively affect your credit score.

Budgeting and Buying Support

Budgeting for homeownership is crucial to ensure you can comfortably afford your mortgage, maintenance, and other expenses without financial stress. Using a worksheet helps you track income, expenses, and savings, giving you a clear picture of what you can afford and helping you plan for the unexpected.

Budgeting for Homeownership vs. Debt-to-Income Ratio (DTI): What’s the Difference?

Budgeting for Homeownership:

This is all about your financial comfort zone. It’s a personal plan where you consider your income, expenses, savings goals, and lifestyle. You’ll look at everything—mortgage payments, property taxes, insurance, maintenance, utilities, and maybe a little cushion for those “surprise” repairs. The goal is to figure out what you can realistically afford to spend on a home without sacrificing other financial priorities (like that annual vacation or your avocado toast habit).

Debt-to-Income Ratio (DTI):

This is the lender’s way of measuring how much house they think you can afford. DTI is a percentage that compares your monthly debt payments (credit cards, car loans, student loans, etc.) to your gross monthly income. Most lenders like to see a DTI below 43%, though some programs allow flexibility. It’s all about risk for the lender—making sure you can handle the mortgage payment along with your other debts.

Key Difference:

Budgeting is your reality check based on your goals and comfort. DTI is the lender’s guideline to assess whether you qualify for a loan. Ideally, they align, but your budget should be the final word—you’re the one making the payments, after all!

Mortgage Calculators

*PMI- Private Mortgage Insurance is a policy that protects lenders if a borrower defaults on their mortgage. Actual rate will vary depending on credit score, down payment, etc.