How much down payment do you need to buy a house in Maryland?

The minimums, by loan type

The CFPB explains that the down payment you need varies by the loan you choose and the lender’s requirements, and that if you cannot put 20 percent down, lenders usually require private mortgage insurance or an FHA, VA, or USDA loan. The table shows the typical floors; your loan officer confirms what applies to your file and the property.

A bigger down payment usually means a lower rate and a smaller monthly payment, but it is not automatically better if it empties your savings. Freddie Mac’s survey found nearly a third of prospective buyers believe they need 20 percent, and calls that belief one of the largest perceived barriers to homeownership.

What mortgage insurance is, and what it costs you

Mortgage insurance protects the lender if you stop paying; you pay for it. On a conventional loan it is called private mortgage insurance, the CFPB explains, and it is usually required when your down payment is below 20 percent. On an FHA loan it is an insurance premium paid to FHA, partly upfront and partly with each payment.

Freddie Mac points out that the cost of PMI can be small compared with the value of buying sooner rather than waiting years to save 20 percent. Conventional PMI can be removed once you reach enough equity; FHA insurance rules are different. Ask your loan officer to show both the monthly cost and when it could go away.

Where the money can come from

Most buyers use savings, but Freddie Mac’s data shows gifts from family, proceeds from selling a previous home, and assistance from government or nonprofit programs are all common. What the lender needs is a paper trail. Fannie Mae’s guide says unverified funds are not acceptable for the down payment, closing costs, or reserves, which is why the lender asks for two months of bank statements.

A large deposit, defined in that guide as a single deposit over half of your monthly qualifying income, has to be explained and documented on a purchase. A bonus, a tax refund, or the sale of a car is fine when you can show it; cash that cannot be traced usually cannot be counted.

• Keep the money in the same accounts for at least two months before you apply.
• Do not deposit cash from a jar or a friend into the account you will use.
• Keep the paperwork for any large deposit: the sale receipt, the bonus stub, the refund notice.

Gift funds from family

A gift from a relative can pay all or part of the down payment and closing costs on a home you will live in. Fannie Mae’s guide describes acceptable donors, including relatives by blood, marriage, adoption, or legal guardianship, and requires the gift to be documented, usually with a signed gift letter and proof of the transfer.

The donor cannot be the builder, developer, real estate agent, or anyone else with an interest in the sale, and a gift is not a loan: it cannot be expected back. Tell your loan officer about a gift before the money moves so the transfer is documented in the simplest way.

Maryland down payment assistance

The Maryland Department of Housing and Community Development runs the Maryland Mortgage Program, which the state describes as home loans and down payment assistance for people looking to become homeowners, along with homebuyer education requirements and approved counseling resources. Counties and cities in Maryland run their own programs as well.

These programs are delivered through participating lenders and have their own income limits, purchase-price limits, education requirements, and repayment or forgiveness terms that change over time. Ask your loan officer whether the lender participates and what the current terms are before you count on any of it, and read the written terms before closing.

The rest of your cash to close

The down payment is one line. Closing costs, which Freddie Mac estimates at roughly 2 to 5 percent of the purchase price, prepaid insurance and taxes, and the escrow deposit are the others, and in Maryland the state and county transfer and recordation taxes appear here too; your contract says how they are split with the seller.

Your Loan Estimate shows the total as “estimated cash to close.” Compare that number, not the down payment alone, with what you have saved, and keep a reserve for after the move.