When you walk into a lender's office, one of the biggest questions you will be asked is how much cash you have available for a down payment. Don't be surprised—learn all about mortgage down payment rules before you step foot into a bank to inquire about a loan. Once you have a thorough view of what's needed for a down payment, you and your partner have to get serious about saving to meet those requirements.
By most lender standards, you need a minimum of a 20 percent down payment in order to qualify for and receive a home loan. The lender wants to see that you are personally invested in the house you plan to purchase. In the past, you could get a home that was 100 percent financed by the lender, not anymore.
If you plan to apply for an FHA (Federal Housing Administration) insured loan, your mortgage down payment requirements are more lenient. With an FHA loan, you can put as little as 3.5 percent down on the home. The requirement is much lower because the government provides mortgage insurance in case the borrower defaults. With these loans, the lender can recover all or some of his loss on the investment.
Sources of the Down Payment
Mortgage companies have rules regarding the sources where you can get the funds to pay for your down payment. For example, if you plan to pay for the down payment with a gift, it must be from a close family member. You can withdraw funds from an IRA, 401K or similar retirement account. You can also source funds from a first-time homebuyer's program offered by your community. Some local programs match your savings to help you afford the down payment.
Paying the Down Payment
At the closing table, you must provide the title agent with a certified check for the down payment plus any closing costs. The title agent distributes money to all necessary parties, including the seller and lender.