When Is a House Down Payment Due and How Much Do I Need?

So the down payment is due at closing?

Yep. As we mentioned, your lender will need to see that you do actually have the money as part of your loan approval process — a current bank statement will usually suffice — but you won’t need to transfer it out until closing day.

“Down payments are always due at the time of closing,” says Jeremy Larsen, a Dallas-based real estate agent with 16 years of experience. “I’ve never seen a circumstance where it was different.”

What you will have to cough up right away is any earnest money you’ve offered the seller as part of your purchase agreement. Earnest money is an amount — usually between 1% and 3% of the purchase price — offered to the seller as a sign of good faith. It shows them you’re serious about buying their home and that you’re able to put your money where your mouth is, so to speak.

If you back out of the sales agreement and your reason for doing so isn’t covered by contingency written into the contract, the seller can keep your earnest money. Otherwise, earnest money will be held in an escrow account until closing, and the amount is then applied toward your down payment at closing.

(Larsen cautions that if you’re buying a new construction home, you will likely be expected to pay a much larger percentage of earnest money. The amount will vary from state to state and builder to builder, so talk to your agent for more insight on this one!)

Looking at that $200,000 house again, let’s say you’ve offered the seller $2,000 in earnest money, and you’ll be putting a total of 10% down. The $2,000 earnest money will go toward the amount you owe at closing, so you’ll need to have another $18,000 ready to go.

How is the down payment actually paid?

At closing, you’ll need to be prepared with either a cashier’s check or proof of wire transfer covering the balance owed on your down payment. But don’t worry, all of this will be clearly spelled out for you ahead of time.

“The big demystifier for first-time buyers is that they’re going to get what we used to call a good faith estimate,” explains Larsen. “Buyers will get an approximation of what they will owe at closing, then once they’ve secured their loan, they’re going to get a Closing Disclosure a minimum of three days prior to closing. This will require their signature and show them to the penny what they will owe at the closing table and what their monthly mortgage payment will be.”

In other words, there won’t be any surprises at the closing table — you’ll know exactly what you’re paying and to whom.

Don’t forget about closing costs

The down payment is rarely the only dollar amount you’ll owe as a homebuyer at the closing table — there are lots of fees and expenses that go into the legal transfer of property. Some of these costs are the seller’s responsibility, and some will be yours.

Closing costs for buyers often clock in between 2% and 5% of the purchase price, and expenses beyond your down payment may include some (or all) of the following:

In short, there’s a lot going on during the process of buying a home, and you’re most likely going to have to come out of pocket for some of these costs. Fortunately, between your agent, your lender, and the closing attorney, you’ll know what to expect at each step.

Explaining down payments

As we’ve covered, when you’re ready to buy a house, you’ll usually need to show your mortgage lender proof that you have the down payment saved. How much you’ll put down depends on the specifics of your finances and what kind of mortgage you’re getting.

Luckily, there are options for homebuyers making modest or low down payments, including assistance programs.

VA loan

Veterans have access to the Veterans Affairs (VA) loan when buying a home, a great benefit of serving the country as a current active military member, a military veteran, or as a surviving spouse of someone in the military.

Drew May, a leading real estate agent in Augusta, Georgia, where Fort Gordon is located, says there is “no better financing” than a VA loan for military buyers. A VA loan provides 100% financing with no money down — so no down payment. Making it even more desirable, in January 2020, the Department of Veterans Affairs eliminated cap limits on VA home loans.

“So, someone could literally buy a $700,000 house with no money down with a VA loan,” says May.

FHA loan

A Federal Housing Administration loan is backed by the federal government. It’s popular with first-time homebuyers because if you don’t have a high credit score or can’t afford a large down payment, you can still get approved for an FHA loan with a low down payment of 3.5%.

Unless you’re putting 20% down on a mortgage loan, mortgage insurance is required to protect the lender if the buyer defaults on their loan. So, the FHA loan comes with two insurance premium payments: an upfront premium of 1.75% of the loan amount due when the loan is granted, and an annual insurance premium ranging from 0.15% to 0.75% that’s paid with the mortgage.

USDA loan

If you’re looking for a home in a rural or suburban area and meet income requirements, a USDA loan could be an option for a zero-down-payment mortgage.

NACA loan

NACA is a non-profit, HUD-certified mortgage organization focusing on low-to-moderate-income homebuyers and lower-income areas. Its mission is to broaden homebuying access and opportunity to everyone. They offer a 30-year or 15-year fixed-rate term with no down payment or closing costs required for those who qualify.

State first-time homebuyer assistance

There are also location-based state and community assistance programs for first-time homebuyers that are worth researching. For qualifying buyers, they offer no down payment and reasonable interest rates on their mortgages.

Conventional loan

A conventional loan is a typical non-government-backed mortgage loan provided by a non-depository mortgage lender, bank, or credit union. Lenders have varying down payment requirements, but usually, the lowest possible down payment for a conventional loan is 3%. But if you have enough saved for a larger down payment, it will definitely pay off in the long run. Similar to government-backed loans, conventional lenders will charge private mortgage insurance (PMI) to offset the risk that comes with a lower down payment.

“The way you get out of private mortgage insurance is at the 20% level of down payment. So, often if somebody’s sold a house and they’re walking away with a lot of equity, they’ll roll that in and do at least a 20% down payment, if they’re move-up buyers and have the cash,” says May.

Freddie Mac Home Possible

The government-sponsored enterprise Freddie Mac offers a Home Possible Mortgage for qualified buyers with as little as a 3% down payment. It’s a type of conventional loan.