How Much Money Do I Need to Put Down for My First Home

If you’re looking to buy a home, you should know by now that there are many expenses involved in the home-buying process. There are costs associated with the property itself, the paperwork, closing, and the professionals you have to work with, such as conveyancers and real estate firms. 

Although your home purchase mortgages allow you to pay in small amounts each month or so, there’s a considerable upfront cost that you’ll have to consider, which is the down payment. While many first-time buyers tend not to think about this expense, it’s a crucial element that significantly impacts a person’s monthly expenses. 

With this in mind, let’s look at what down payment is and how much money to put down for your first home.

What Is Down Payment?

A down payment is money you’ll have to pay upfront (typically in cash) for a large purchase, such as a home or a car. This money is often a percentage of the asset’s value. For example, a 10% down payment on a property that costs $250,000 would be $25,000—this would be the money you have to put down at closing.

The down payment signifies the buyer’s initial ownership stake in the property, and the mortgage lender will provide the rest of the funds to finance the home. Most mortgages require down payments, but federal government-backed ones like USDA and VA loans may not need them.

How Much Money Should You Put Down on a Home?

Paying down payments will allow lenders to determine the amount they have to lend the buyers and what mortgage plans best fit their current financial situation. You have to pay no set amount, but a good rule of thumb is to spend 10–20%. This percentage is the standard for many mortgage lending institutions, and you’ll have a higher chance of getting approved if you’re willing to pay around that amount.

Sometimes, you can get away with paying less than a 10–20% down payment. As a result, you can shell out less cash upfront. However, even if it’s enticing to put less money down, it may not be the best option for everyone. Paying too little at the start will mean you’ll have to pay more in monthly fees and interest rates because this is a high-risk move for lenders.

On the other end of the spectrum, some people put excessive money into the down payment. They benefit from having lower interest rates and monthly fees, but it can harm their savings and future financial health. Many of them fall short on cash shortly after they’ve moved in.

How do you determine the optimum down payment? It’s best to look at your financial situation and goals. Set a budget and allot some for other expenses, such as closing costs, home maintenance, and emergencies. It’s advisable to avoid using all your savings for the down payment. When in doubt, talk with your mortgage broker to find solutions that fit your needs and budget.

The Takeaway

Most mortgages require buyers to pay down payments, which are the most significant expenses they have to pay upfront. Typically, lenders will need 10–20% of the home’s value, but the home-buyers can spend more or less. However, the amount they put down can impact the interest rates and monthly payments, so it’s best to plan appropriately and consult a professional.

If you’re looking for a trusted mortgage broker in California, Nextafi has you covered. We’ll provide you with complimentary advice and very competitive mortgage rates that suit your needs, all with a streamlined loan experience. Let us help—apply today!