I was recently asked: What’s a realistic down payment percentage for a first-time home buyer?  This is a great question, especially in markets like Austin where home prices have been increasing steadily for several years.

The simple, short answer is: for any buyer, especially first time home buyers, down payments as low as 3% are very common. The average down payment these days is 10% according to the Home Buying Institute.

The longer, better answer is multi-faceted.

Smaller down payments do limit the loan programs that are available to you, but if you are looking for a conventional loan (under $421,000 in most parts of the US), you generally will have several excellent options. These include conventional 97%, HomeReady, Home Possible, FHA, VA and USDA programs.

Loans for transactions where the buyer puts down less than 20% are considered riskier by lenders, so you will need to pay mortgage insurance each month as part of your mortgage payment. On conventional loans, mortgage insurance goes away once your loan-to-value ratio reaches 80%; on FHA loans, mortgage insurance is built into the loan amount so it remains with the loan as long you have the loan. Mortgage insurance can range from less than $50 per month to over $300 per month depending upon your credit, the loan to value ratio, and the type of loan program.

There are many programs out there for first time home buyers – down payment assistance programs as well as loan products. I recommend that you find a lender and get prequalified BEFORE you begin your house hunting. Ask your lender about the down payment assistance programs they offer and see which ones make sense for you. Most require some sort of credit or money management training course; these are usually free or very low cost and quick to take.

The smartest thing you can do if you are thinking about buying a home is to talk to a lender! A lender will walk you through your options, get you prequalified, and help you understand the costs associated with buying a home and your budget for a home.