While the traditional down payment has been around 20% of the home’s price, today’s lending options provide more flexibility, allowing many buyers to make smaller down payments. If you're going with a conventional loan, you might qualify for down payments as low as 3%, which is especially helpful for first-time buyers or those who haven’t had time to save for a larger down payment. There are also specialized loan options, like VA loans for qualified veterans, which may not require a down payment at all. FHA loans are another popular option, often allowing down payments as low as 3.5%.

That said, putting down more than the minimum has advantages. A larger down payment reduces the loan amount and can help you secure a lower interest rate, as lenders see you as less of a risk when you invest more upfront. It also gives you more immediate equity in the home and can eliminate the need for private mortgage insurance (PMI). PMI is an extra cost that’s usually required if your down payment is below 20%. While it protects the lender in case you default on the loan, it’s an added monthly expense for you. By making a larger down payment, you avoid PMI and reduce your monthly costs, making homeownership more affordable over the long run.

So, while it’s possible to buy a home with a small down payment, consider your long-term financial goals. A higher down payment can save you significantly over the life of the loan and lower your monthly payments, helping you build equity faster.

Your credit score is a big factor in determining your interest rate. A higher score generally means a lower rate, saving you money over the life of the loan. Lenders view high credit scores as an indication that you’re financially responsible and less risky to lend to. If your credit needs work, it can be beneficial to improve it before applying, as even a slight rate reduction can lead to significant long-term savings.

Your monthly mortgage payment usually covers four main parts: principal, interest, taxes, and insurance—often called PITI. The principal is the amount you borrowed for the home, while interest is what you pay the lender for borrowing that money. Taxes refer to property taxes, which are typically collected by your lender and sent to the local government. Insurance includes homeowners insurance, which protects both you and the lender if anything happens to the home. If your down payment was less than 20%, you might also have private mortgage insurance (PMI) added to your payment, which lenders require to protect themselves in case payments stop.

While the 28/36 rule is a helpful guide, affordability is personal, and it’s essential to look beyond just the lender’s calculations. You’ll want to factor in other expenses unique to your lifestyle, such as savings goals, retirement contributions, and unexpected costs like home maintenance or repairs. A lender might approve you for a higher loan amount than you’re actually comfortable with, so it’s wise to map out your own budget, considering your savings, travel, and entertainment expenses. Ultimately, the goal is to ensure you can comfortably afford the payments without stretching yourself too thin each month.

To get a better sense of what’s realistic for you, check our calculator above to see what your monthly payments might look like. You can also consult with a Nuvision Credit Union expert for personalized advice on finding the right loan amount for your budget. This way, you’re not only prepared to qualify for a loan but to enjoy your home without financial stress.

PMI is insurance that protects the lender in case you default on your loan. It’s generally required if you make a down payment of less than 20% on a conventional loan. The cost of PMI is typically added to your monthly mortgage payment. The good news is that once you reach 20% equity in your home, you can often request to cancel PMI, which will lower your monthly payments.