In addition to the initial price tag of the home, expect two other upfront expenses: the down payment and closing costs.
You’ll get the most favorable mortgage rates and avoid paying private mortgage insurance by making a down payment of 20 percent or more. That’s because lenders take on less risk with borrowers who put more money down. With a 20 percent down payment, you’ll pay $20,000 for every $100,000 of the home’s price. For example, on a $300,000 home, a 20 percent down payment would be $60,000.
There’s no requirement to make a down payment of 20 percent or more, and there are several low or no down payment mortgages out there that allow for less money upfront. Some conventional mortgage programs backed by Fannie Mae and Freddie Mac require just 3 percent down. (The caveat with these types of loans is that they may have income restrictions and require higher credit scores.)
FHA loans from the Federal Housing Administration require just 3.5 percent down, and you’ll need a credit score of at least 580 to qualify. VA loans and USDA loans don’t require a down payment at all, although you’ll need to meet certain criteria in order to be eligible.
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