Question 1

How much down payment do I need to buy a home?

Accepted Answer

The required down payment varies by loan program. Conventional loans require as little as 3 percent for first-time buyers or 5 percent for repeat buyers, though 20 percent eliminates the need for private mortgage insurance. FHA loans require a minimum of 3.5 percent with a credit score of 580 or higher. VA loans and USDA loans offer zero down payment options for eligible borrowers. Some non-QM programs may require 10 to 20 percent down depending on the borrower profile. While putting more money down reduces your monthly payment and can secure a better interest rate, it is important to balance your down payment with maintaining adequate cash reserves for emergencies, moving costs, and home repairs. At National Mortgage Home Loans, we analyze your complete financial picture to recommend the optimal down payment amount that balances monthly affordability with long-term financial health.

Question 2

What are closing costs and how much should I expect?

Accepted Answer

Closing costs are fees and expenses paid at the finalization of your mortgage, beyond the down payment. They typically range from 2 to 5 percent of the loan amount. Common closing costs include lender origination fees, appraisal fees, title search and title insurance, attorney fees, recording fees, prepaid property taxes and homeowners insurance, and prepaid interest for the days between closing and your first payment. On a 300,000 dollar loan, you might expect closing costs between 6,000 and 15,000 dollars. Some closing costs are negotiable, and in some market conditions you may be able to ask the seller to contribute toward your closing costs. You can also choose to roll certain costs into your loan amount or accept a slightly higher interest rate in exchange for a lender credit that offsets closing costs. At NMHL, we provide a detailed Loan Estimate within three business days of your application so you know exactly what to expect.

Question 3

Can I use gift money for my down payment?

Accepted Answer

Yes, most loan programs allow gift funds for all or part of your down payment, though the rules vary. FHA loans allow 100 percent of the down payment to come from gift funds from a family member, employer, or approved organization. Conventional loans allow gift funds as well, but if your down payment is less than 20 percent, the lender may require that at least 5 percent comes from your own funds depending on the specific program. VA and USDA loans also accept gift funds. The key requirement across all programs is proper documentation. You will need a gift letter signed by the donor stating that the funds are a gift and no repayment is expected, proof of the donor ability to give the funds, and a paper trail showing the transfer from donor to borrower. The funds must be in your account and documented before closing. At National Mortgage, we provide gift letter templates and guide both you and your donor through the documentation process.

Question 4

What is down payment assistance and how do I qualify?

Accepted Answer

Down payment assistance programs are offered by state and local governments, housing authorities, and nonprofit organizations to help homebuyers cover their down payment and sometimes closing costs. These programs come in several forms including grants that do not need to be repaid, forgivable second mortgages that are forgiven after a certain number of years of homeownership, deferred-payment second mortgages with no payments until you sell or refinance, and low-interest second mortgages with affordable monthly payments. Eligibility typically depends on your household income relative to the area median income, the property location, and whether you are a first-time homebuyer. Income limits vary by program and area but often extend to moderate-income households earning up to 80 to 120 percent of area median income. At NMHL, we maintain an updated database of down payment assistance programs in every state where we lend and can identify programs you may qualify for based on your income, location, and buyer status.

Question 5

Is it better to put 20 percent down?

Accepted Answer

Putting 20 percent down has clear advantages: you avoid private mortgage insurance, you get a lower monthly payment, you build immediate equity, and you may qualify for better interest rates. However, 20 percent is not always the best strategy. Waiting years to save 20 percent means missing out on home equity appreciation during that time. If home values increase by 5 percent annually, delaying your purchase by two years could cost you more than the PMI you would have paid. Additionally, depleting your savings for a larger down payment leaves you vulnerable to unexpected expenses. A balanced approach considers your overall financial health. If you can comfortably afford a home with 5 or 10 percent down while maintaining an emergency fund and retirement contributions, that may be the smarter financial move. PMI is also not permanent on conventional loans and can be removed once you reach 20 percent equity. At National Mortgage Home Loans, we model different down payment scenarios so you can see the real cost comparison and make the decision that fits your financial plan.

Question 6

Can I roll closing costs into my mortgage?

Accepted Answer

In some cases, yes, you can finance your closing costs rather than paying them out of pocket. For a purchase loan, you can negotiate seller concessions where the seller pays a portion of your closing costs. The limits depend on the loan type and your down payment amount. On conventional loans, sellers can contribute 3 percent with less than 10 percent down, 6 percent with 10 to 25 percent down, or 9 percent with more than 25 percent down. FHA allows up to 6 percent in seller concessions. Another option is a lender credit, where you accept a slightly higher interest rate in exchange for the lender covering some or all of your closing costs. This is sometimes called a no-closing-cost mortgage. For refinances, closing costs can typically be rolled directly into the new loan balance. Each approach has trade-offs between upfront costs and long-term costs. At NMHL, we present all available options and help you determine which structure saves you the most money based on how long you plan to keep the loan.

Question 7

What is earnest money and is it the same as a down payment?

Accepted Answer

Earnest money and a down payment are related but different. Earnest money is a deposit you make when your offer on a home is accepted, typically 1 to 3 percent of the purchase price. It shows the seller you are serious about the purchase and is held in an escrow account until closing. At closing, your earnest money is applied toward your down payment and closing costs. If the deal falls through for a reason covered by your contract contingencies, such as a failed home inspection or inability to secure financing, your earnest money is typically returned to you. However, if you back out of the deal without a valid contingency reason, the seller may be entitled to keep the earnest money as compensation. Your down payment is the total amount you put toward the purchase at closing, minus the loan amount. The earnest money becomes part of that down payment. At National Mortgage Home Loans, we advise you on appropriate earnest money amounts for your market and ensure your contract contingencies protect your deposit.

Question 8

How do I save for a down payment faster?

Accepted Answer

Saving for a down payment requires a focused strategy. Start by setting a specific target based on the home price range you are considering and the minimum down payment for your likely loan program. Open a dedicated high-yield savings account to keep your down payment funds separate and earning interest. Automate transfers from each paycheck to this account. Review your budget for areas to cut back temporarily, such as dining out, subscriptions, or discretionary spending. Consider picking up additional income through overtime, freelance work, or selling unused items. Take advantage of any employer matching programs or bonuses. Look into first-time homebuyer savings programs offered by some states that provide tax benefits. If you have investments, evaluate whether reallocating some funds makes sense given your timeline. Remember that many loan programs require only 3 to 5 percent down, so your goal may be more achievable than you think. At NMHL, we can show you exactly how much you need based on current home prices in your target area and help you explore down payment assistance programs that could reduce your savings goal.

Question 9

Can I use my retirement funds for a down payment?

Accepted Answer

You can use retirement funds for a down payment, but the rules and implications vary by account type. For 401k plans, many allow hardship withdrawals or loans for home purchases. A 401k loan lets you borrow up to 50,000 dollars or 50 percent of your vested balance without taxes or penalties, and you repay yourself with interest. However, if you leave your job, the loan typically must be repaid in full within 60 days. Traditional IRA holders can withdraw up to 10,000 dollars penalty-free for a first-time home purchase, though you will still owe income taxes on the withdrawal. Roth IRA contributions can be withdrawn at any time without taxes or penalties since you already paid taxes on them, and up to 10,000 dollars in earnings can be withdrawn tax and penalty-free for a first home if the account is at least five years old. While these options exist, consider the long-term impact on your retirement savings before using them. At National Mortgage, we recommend discussing any retirement fund withdrawal with a financial advisor in addition to exploring down payment assistance alternatives.

Question 10

What are prepaid costs at closing?

Accepted Answer

Prepaid costs are expenses you pay at closing that cover future obligations associated with your new home. They differ from closing costs in that they are not fees for services but rather advance payments for recurring expenses. The main prepaid items include prepaid interest, which covers the daily interest charges from your closing date to the end of that month. If you close on the 15th of a 30-day month, you would prepay 15 days of interest. You also prepay your first year of homeowners insurance premium so coverage is in place from day one. Additionally, you fund your escrow account with an initial deposit, usually two to three months of estimated property taxes and two months of homeowners insurance, to ensure there are sufficient funds when these bills come due. Prepaid costs typically add 2,000 to 5,000 dollars to your cash needed at closing depending on your loan amount, tax rates, and closing date. At NMHL, your Loan Estimate will clearly itemize all prepaid costs so you can plan your closing funds accurately.

Question 11

Do zero-down-payment mortgages still exist?

Accepted Answer

Yes, zero-down-payment mortgage options are still available for qualifying borrowers. VA loans, available to veterans, active-duty service members, and eligible surviving spouses, offer 100 percent financing with no down payment required and no private mortgage insurance. USDA loans provide zero-down financing for homes in eligible rural and suburban areas for borrowers meeting income requirements, which are typically set at 115 percent of area median income. Some state and local housing programs also offer grants or forgivable second mortgages that effectively create a zero-down-payment situation by covering your entire down payment. Navy Federal Credit Union and a few other lenders offer their own zero-down conventional-style products to members. While zero-down options mean higher monthly payments and more interest paid over the life of the loan, they can be an excellent path to homeownership when saving for a down payment would otherwise delay your purchase by years. At National Mortgage Home Loans, we specialize in VA and USDA programs and can quickly determine your eligibility for zero-down financing.

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Down Payments & Closing Costs

Frequently Asked Questions

How much down payment do I need to buy a home?

Still Have Questions? We're Here to Help

All Down Payments & Closing Costs Questions

What are closing costs and how much should I expect?

Can I use gift money for my down payment?

What is down payment assistance and how do I qualify?

Is it better to put 20 percent down?

Can I roll closing costs into my mortgage?

What is earnest money and is it the same as a down payment?

How do I save for a down payment faster?

Can I use my retirement funds for a down payment?

What are prepaid costs at closing?

Do zero-down-payment mortgages still exist?

Can't Find Your Answer?

Our Clients' Experience

Related Resources

Our Presence

Your Dream Home Starts Here

Lower Your Rate Today

Build Your Portfolio

Down Payments & Closing Costs

Frequently Asked Questions

How much down payment do I need to buy a home?

Still Have Questions? We're Here to Help

All Down Payments & Closing Costs Questions

What are closing costs and how much should I expect?

Can I use gift money for my down payment?

What is down payment assistance and how do I qualify?

Is it better to put 20 percent down?

Can I roll closing costs into my mortgage?

What is earnest money and is it the same as a down payment?

How do I save for a down payment faster?

Can I use my retirement funds for a down payment?

What are prepaid costs at closing?

Do zero-down-payment mortgages still exist?

Can't Find Your Answer?

Our Clients' Experience

Related Resources

Understanding Mortgage Basics

How to Prepare for Your Mortgage Application

Common Mortgage Mistakes to Avoid

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