Buying a second home can be one of the biggest steps toward solidifying your financial future. In an effort to get ready for this, you might be asking yourself how much you should be saving to afford a second home. One of the biggest determinators will be which type of mortgage loan you will be applying for. In this article, we will discuss types of mortgage loans and what they require from you, the borrower. 

What Is a Down Payment? 

A down payment is a lump sum of money given to a loan provider to help show that you are capable of paying the full loan amount. If you default on your loan, the lending institution will take your down payment to make up for their loss in the investment. 

Down Payment Requirements

You might expect to need about 20% of the total loan value in available cash, but that isn’t always the case. In 2021, the average down payment for a home ranged from 7-17% of the mortgage value. 

If you’d like to buy a home with less than 20% down, there are some loan options for you. Let’s take a look at what’s available! 

VA loans 

These loans are specific to military members and their qualifying spouses. Typically you will not need to provide any down payment to get approved for this loan. 

USDA Loans 

These are loans for buyers in rural America. These loans require as little as 0% down if you fall into their requirements. All rural areas are accepted into this lending program. If you live in a suburb, you might also qualify for this loan, so make sure to check out your local USDA eligibility map. 

Conventional Mortgages 

Conventional mortgages are loans that aren’t backed by the government. They follow the guidelines of Freddie Mac and Frannie Mae. These were created by congress in an effort to provide stability and affordability to the housing market. If you go this route, you may only need 3% for a down payment.

FHA Loans 

These loans are loans backed by the Federal Housing Administration. If you have a credit score of at least 580, you may only need to put 3.5% down on your home loan. If you have a credit score between 500 – 579, you will need to put down 10% towards your mortgage. 

Jumbo Loans 

These are loans that aren’t within the branches of the Federal Housing Finance Agency’s loan limitations. These down payments can be 10% or above to counteract the risk they are taking. 

Determining the Loan for You

Putting down an appropriately sized down payment should also take into account your current financial status. You wouldn’t want to put yourself in a bad financial position and not be able to afford any repairs or improvements to your new home. Ideally, you should put down enough money to satisfy your lender but not zero out your savings account. 

Ready to Move?

Thinking about purchasing a home, or curious how much you can afford? Start here! EmpowerHome Team Mortgage can shop multiple lenders with one credit pull, so you get the best rate without the hassle. We are passionate about helping you purchase your dream home and are happy to help guide you through the financial responsibilities involved in a mortgage. Give us a call today at 703-879-2729 or visit us online to get started on your home-buying journey!