Down payment options for a $300K home
How big of a down payment do you need for a $300,000 house? That’s going to depend entirely on the type of mortgage you choose.
For some, it could be literally nothing — not a dime. But most will need at least 3% of the purchase price ($9,000) or 3.5% ($10,500). And if you have 20% down ($60,000), you could save yourself thousands in mortgage insurance and mortgage interest.
It’s all about finding the right down payment amount for you. Here’s how.
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Down payment requirements for a $300K house
The down payment amount you’ll need depends on the type of mortgage loan you choose. Here’s how much you’d need to put down on a $300,000 home with each of the five major loan programs:
- Conventional loan: $9,000 (3% down). A loan that conforms to Fannie Mae and Freddie Mac’s guidelines, including a minimum credit score of 620
- FHA loan: $10,500 (3.5% down). Backed by the Federal Housing Administration. Your credit score may be as low as 580 if you have a 3.5% down payment
- VA loan: $0 (0% down). Only available to military service members and veterans who have reached minimum service thresholds. Surviving spouses may also apply
- USDA loan: $0 (0% down). You need to purchase in a designated rural area and have a low-to-moderate income for the area where you’re buying
- No-PMI conventional loan: $60,000 (20% down). If you want to avoid private mortgage insurance (PMI) you need 20% down. But you may find lenders that allow you to borrow a second mortgage to bridge the gap between your savings and that 20%. More on that below
Of course, all these are minimums. As a general rule, the more cash you put down, the lower your interest rate is likely to be.
But even if you come up short of 3% or 3.5% down, you may have options.
Down payment assistance programs (DPAs) exist across the country, and these can help with grants or loans to cover some or all your down payment needs. Some even contribute to closing costs.
These DPA programs can put homeownership within reach for first-time buyers who can easily afford mortgage payments but are having trouble saving for the upfront costs.
What’s the minimum amount you can put down?
Everyone’s home buying process is unique, and the mortgage loan you qualify for will largely depend on your financial situation. Lenders look at things like credit score, gross monthly income, and total debt payments to determine your home loan eligibility.
We’ve already mentioned some of the restrictions on certain types of loans. But let’s take a deeper dive into the requirements for low- and zero-down mortgages.
1. VA loans ($0 down)
To get a zero-down VA loan (backed by the Department of Veterans Affairs), you need a Certificate of Eligibility (COE). And the VA has strict rules about those.
Veterans, active-duty service members, members of the National Guard, and reservists typically qualify, along with some surviving spouses.
You’ll need an “acceptable” credit history as well. Some mortgage lenders are happy with a credit score of 580, but many want 620-660 or higher. Shop around if your score is low.
2. USDA loans ($0 down)
USDA mortgages are backed by the U.S. Department of Agriculture as part of its rural development program. Like the VA loan program, USDA allows a 0% down payment (though you still need to pay closing costs out of pocket).
You’ll have to buy in a qualifying rural area for USDA. However, your occupation doesn’t have to be connected to agriculture in any way.
You must also have an annual income that’s low or moderate for the area where you’re buying. Not sure whether your income qualifies? Use this lookup tool to check your eligibility.
While the USDA doesn’t have a set credit score requirement, most lenders offering USDA-guaranteed mortgages require a score of at least 640. This is the minimum credit score you’ll need to be eligible for automatic approval through the USDA’s automated underwriting system.
However, some USDA lenders might allow scores below 640 with “compensating factors” like a lower debt-to-income ratio (DTI) or a bigger down payment.
3. Conventional loans ($9,000 down)
A Conventional 97 loan requires a down payment of only 3% of the home’s purchase price. These loan types are guaranteed by Fannie Mae and Freddie Mac, the agencies that set rules for conventional mortgages.
That’s $9,000 on a $300,000 home — the lowest possible unless you’re eligible for a zero-down-payment VA or USDA loan.
The minimum credit score requirement is 620 for a conventional loan. But (and you’ll have spotted a theme here) individual lenders can impose higher minimums. So shop around for a more flexible lender if you’re turned down with a FICO score of 620.
If you can qualify, conventional loans may be better than those from the FHA. That’s because they let you stop paying private mortgage insurance (PMI) once your equity (the amount by which your home value exceeds your mortgage balance) reaches 20 percent.
By contrast, FHA makes you keep paying mortgage insurance premiums (MIP) until you sell, refinance, or finish paying down your loan.
If you can put at least 20% down on a conforming loan right off the bat, you won’t need to pay PMI at all.
4. FHA loans ($10,500 down)
The smallest down payment you can make on an FHA loan is 3.5% — or $10,500 on a $300,000 home. That’s a bit higher than for conventional loans.
As we mentioned, FHA loans require mortgage insurance premiums until you sell, refinance to a different type of loan, or simply pay the balance off, usually after 30 years.
So why do so many people choose these?
Mainly because FHA allows credit scores as low as 580 (or 500, if you can put 10% down). Often, an FHA loan can be a shortcut to homeownership. And if you’ll move or refinance within the next few years, those mortgage insurance payments aren’t as big of a deal.
5. No-PMI conventional loans ($60,000 down)
Most conventional loans fall into the “conforming loan” category regulated by Fannie Mae and Freddie Mac. The least you can put down with these is 3%.
With 3% down (or anything less than 20%), you’ll be paying PMI for at least a few years. But paying for PMI isn’t always a negative. In many cases, it’s better to pay PMI while you build home equity, rather than continuing to rent.
“FHA loans and programs like HomeReady have lower interest rates,” reminds Jon Meyer, The Mortgage Reports loan expert and licensed MLO. “So calculate the difference in total payments between different loan programs to see which makes more sense.”
How much you’ll actually pay for PMI will depend on factors such as your credit score and down payment. Your mortgage quotes (“Loan Estimates”) will give you an exact sum.
Some homeowners avoid PMI by using a conventional “piggyback loan” that lets you put 10% down and borrow another 10% via a home equity loan. Together, your down payment and second mortgage equal a 20% down payment — so you don’t have to pay PMI.
If cash isn’t an issue, you can go ahead and put 20% down right away. That’s $60,000 out of pocket on a $300,000 home. This will earn the lowest mortgage rate and help you to reduce both your monthly mortgage payments and your total interest costs.
Should I put 20% down on a $300K house?
When does 20% make sense as the down payment for a $300,000 house? The brief answer is: When you can afford it.
Putting down 20% on a home purchase earns you real advantages because:
- You don’t have to pay for private mortgage insurance (PMI)
- You’re likely to get a lower mortgage interest rate than those with smaller down payments
- You’ll have lower monthly payments because you’re borrowing less. Your loan amount is $240,000 with 20% down as opposed to $291,000 with 3% down
- You’ll have a far lower total cost over the loan term
A bigger down payment can also earn you some extra wiggle room when qualifying for a mortgage. For example, suppose a lender wants a minimum credit score of 700. You might get away with a score a few points below that if you’re putting 20% down.
Be patient and consider your options
Of course, relatively few first-time home buyers can scrape together 20 percent. And if you can’t, it’s not a big deal. Monthly payments and home price inflation can help push up home equity to the 20% level, at which point you can stop paying mortgage insurance altogether.
There are even arguments against putting down 20% on a new home. If you’re buying real estate mainly as an investment, there can be good reasons to keep your down payment small. And if a 20% down payment would drain your savings, it’s often better to keep some cash in the bank for emergencies and inevitable moving expenses like furniture and repairs.
Down payment assistance
Suppose you’re short on cash for a down payment on a $300,000 home. We mentioned down payment assistance programs earlier. DPAs offer home affordability programs to those with low to moderate household incomes.
There are thousands of these assistance programs across the country. Speak with your loan officer, real estate agent, or Realtor to find one in your area. Or if you’re in the early phases of your home buying journey, we’ve gathered DPA programs in every state just for you.
Each DPA program is independent and gets to set its own rules. So we can’t tell you exactly what help you might get. But it’s likely to be one of the following:
- Low-interest loan that you pay back in parallel with your mortgage
- Forgivable loan that doesn’t have to be repaid if you remain in the home for a certain number of years
- Outright grant that never has to be repaid
Some also contribute to closing costs. And it’s worth noting that lenders are generally enthusiastic about DPAs. They know all about these programs and typically approve.
Gifts from family and friends
Still short on funds for a $300K house? Lenders are usually fine with cash gifts from family members to cover a down payment. But some are not OK with gifts from people who aren’t family members. Ask about your lender’s policy.
Be aware that such gifts come with rules. The main one is that the money you receive must be a true gift and not a loan in disguise. And your donor will have to provide a mortgage gift letter confirming that’s the case.
You’ll also need to document the transfer of funds. So you’ll need to show the source of the funds as well as the money leaving your donor’s account and arriving in yours.
What’s the monthly payment on a $300K house?
At a 5% fixed interest rate, monthly payments on a $300K house might fall between $1,300 and $1,940. This is a rule of thumb, and your monthly housing payment will be determined by your credit score, the type of loan, and other financial factors.
We used The Mortgage Reports’ mortgage calculator to model the monthly payments on a $300K home. Using a 30-year fixed-rate loan at a 5% interest rate, here’s how much you might pay from month to month:
- VA loan payment: $1,935 — Zero down and a rate of 5% (no mortgage insurance)
- USDA loan payment: $1,775 — $1,715 and $60 mortgage insurance, with zero down and a rate of 5%
- Conventional loan payment: $1,877 — $1,562 and $315 private mortgage insurance, with 3% down and a rate of 5%
- FHA loan payment: $1,850 — $1,641 and $209 mortgage insurance, with 3.5% down and a rate of 5%
- 20% down conforming loan payment — $1,288: 20% down and a rate of 5% (no PMI)
Note: These examples include only loan principal and mortgage interest. they do not include additional housing costs, like property taxes, homeowners insurance, and homeowners association (HOA) dues because they vary from one region to the next.
You can use a mortgage calculator to model your own housing payments using today’s mortgage rates.
We’ve used the same mortgage interest rate (5%) for each example. But different types of mortgage loans have different rates. And mortgage rates may well have changed by the time you read this.
We also specified the minimum down payment for a $300K house in each case. But you can input whatever you have saved.
Home affordability FAQ
You’ll need a down payment of $9,000, or 3 percent, if you’re buying a $300K house with a conventional loan. If you’re using an FHA loan, you’ll need a downpayment of $10,500, which is 3.5 percent of the purchase price. Home buyers using either a VA loan or a USDA loan can qualify for a mortgage with zero down payment on a $300K home.
You’ll likely need to make about $75,000 a year to buy a $300K house. This is an estimate, but, as a rule of thumb, with a 3 percent down payment on a conventional 30-year mortgage at 5 percent, your monthly mortgage payment will be around $1,900. Keep in mind this figure doesn’t include home insurance or housing expenses. Also, your home buying budget will vary depending on your credit score, debt-to-income ratio, type of loan, mortgage term, and interest rate.
Your debt-to-income ratio, or DTI, is how much money you owe compared to how much you earn, expressed as a percentage. DTI is determined by dividing your gross monthly income (pre-tax income) by your minimum monthly debt payments, which include debt like car loans, student loans, credit card payments, and even child support. As an example, if your monthly pre-tax income is $4,000, and you have $1,000 worth of monthly debt payments, then your DTI is 25 percent.
A good rule of thumb is that you shouldn’t spend more than 28 percent of your gross monthly income on housing costs and no more than 36 percent on total debts, including your mortgage and credit card payments. For example, if you earn $4,000 in pre-tax income and have $100 in debt repayment, then your mortgage payment shouldn’t exceed $1,340. This is known as the 28/36 rule.
Choosing the right down payment amount for you
Phew! That was a lot of information. But you’re now much better equipped to decide which sort of mortgage will work best for you.
Of course, many home buyers will find it easy to narrow down their options. Because you can’t get a zero-down-payment loan unless you’re eligible for one. And you can’t get a Fannie or Freddie loan unless your credit score is 620 or better.
As importantly, you can’t duck mortgage insurance unless your savings add up to a 20% down payment or you qualify for a VA loan.
So many will find their choices whittled down to one by their financial circumstances. And those who still have two choices will have to pick with one eye on mortgage insurance and the other on monthly payments.
You can easily learn what your options are by getting a preapproval from a mortgage lender.
The information contained on The Mortgage Reports website is for informational purposes only and is not an advertisement for products offered by Full Beaker. The views and opinions expressed herein are those of the author and do not reflect the policy or position of Full Beaker, its officers, parent, or affiliates.