One of the first questions potential home buyers ask is “how much cash do I need to buy a house?” Most of the time, some cash will be needed for a down payment and closing costs. The exact amount of cash will depend on several factors, including the type of loan.
Conventional loans
A conventional loan is made by a bank, mortgage company, or another type of financial institution without government insurance. Conventional loans typically require a down payment in the 5% – 20% range, depending on location and specific loan structure. For some people, this will price them out of using this loan product. However, the ability to put down a large amount of cash brings certain advantages with it. 20% down will usually eliminate the need for Private Mortgage Insurance. A large down payment means a smaller mortgage payment giving you less overhead on a monthly basis.
VA Loans
VA loans are administered by the Veterans Administration. This program was originally created to help veterans purchase a home by providing loans with low down payments and low interest rates. Because VA loans are guaranteed by the federal government, it is still possible to buy a home with up to 100% financing. Other benefits of VA loans are that no PMI is required and loans are usually a little bit easier to qualify. Although the loans are administered by the VA, they are made through a private lender.
FHA Loans
Loans obtained under the guidance of the Federal Housing Administration carry low down payments, usually 3.5% or less. For a $100,000 home, then, a person would need about $3,500 down. One advantage to FHA loans is that the down payment can actually come in the form of a gift. This means it could be a gift from parents or another relative. It will be necessary, though, to document that the funds are available and that the donor intends to provide them as a gift. Every situation is different so be sure to address your goals with your loan officer and Realtor so they can advise the best program for you.
Other Type Loans
Other type loans are available, such as those for investment property. Additionally, down payments are sometimes provided through governmental assistance and charities. More information can be shared by contacting your Benchmark loan officer and discussing how much cash you will need to buy a house.
