How Much Down Payment for a 1 Million Dollar House?

Purchasing a home valued at $1 million represents a significant financial undertaking. The down payment required for such a property is a primary consideration, influencing both the feasibility and the overall cost of homeownership. This article clarifies the complexities of down payment requirements for high-value homes, providing insights into typical percentages, influencing factors, and various funding strategies. Understanding these aspects helps navigate the process of acquiring such a property.

Typical Down Payment Percentages for High-Value Homes

Many homebuyers expect a 20% down payment, particularly for conventional loans, to avoid Private Mortgage Insurance (PMI). On a $1 million home, this means a down payment of $200,000. PMI is required when the loan-to-value (LTV) ratio exceeds 80% for conventional financing.

A $1 million home exceeds conventional conforming loan limits set by the Federal Housing Finance Agency (FHFA) for 2025 ($806,500 in most areas), making a jumbo loan necessary. While a 20% down payment remains common for jumbo loans, some lenders offer programs that allow for lower down payments, as low as 10% or even 5% for qualified borrowers.

Opting for a lower down payment results in a larger loan amount and higher monthly mortgage payments, resulting in more interest paid. While conventional loans with less than 20% down require PMI, many jumbo loan programs do not impose monthly mortgage insurance, even with lower down payments, a notable advantage.

Factors Influencing Down Payment Requirements

The down payment for a $1 million home varies based on several factors. Lender policies play a role, as different financial institutions have varying risk appetites and offerings, particularly for jumbo loans that exceed conventional limits. Some lenders may require a higher down payment, while others might be more flexible for strong applicants.

A borrower’s credit score also influences terms, with higher scores unlocking favorable loan terms, including lower down payment options. Lenders seek credit scores of 700 or higher for jumbo loans, with some prefer 720 or more for competitive rates. The debt-to-income (DTI) ratio, comparing debt to income, also influences eligibility; a lower DTI indicates less risk, preferred at 43% or lower for jumbo financing.

The type of loan, whether conventional (if the property is in a high-cost area where the conforming limit is higher) or jumbo, impacts down payment expectations. Market conditions also play a role; in a competitive seller’s market, a larger down payment can make an offer more attractive to sellers.

Strategies for Funding Your Down Payment

Accumulating the funds required for a down payment on a $1 million home requires a deliberate approach. Establishing a savings plan is essential, involving a detailed budget and setting achievable savings goals. Automating regular contributions to a separate savings account ensures consistent progress towards the target amount.

Liquidating assets can provide a source of funds for a down payment. This includes selling investments like stocks, bonds, or mutual funds, or divesting from a second property. When converting investments to cash, consider potential capital gains taxes on the profits.

Receiving gifts from family members is another common method for funding a down payment. Lenders require documentation for gift funds, such as a gift letter, stating the funds are a gift, not a loan. While not taxable to the recipient, large gifts may have donor reporting requirements with the IRS.

Utilizing funds from a 401(k) plan, via loan or withdrawal, is an option, but it comes with risks and penalties. A 401(k) loan requires repayment with interest, and failure to repay can result in it being treated as an early withdrawal, subject to taxes and a 10% penalty if under age 59½. An outright withdrawal incurs taxes and penalties, diminishing retirement savings. Saving bonus income, commissions, or other windfalls can also accelerate down payment savings.

Alternative Financing Options

For those seeking to purchase a $1 million home without the traditional down payment, alternative financing structures are available. One option is a “piggyback” loan, structured as an 80/10/10 or 80/15/5 loan. In an 80/10/10 scenario, the primary mortgage covers 80% of the home’s value, a second mortgage or home equity line of credit (HELOC) covers 10%, and the buyer contributes a 10% down payment. This structure helps avoid Private Mortgage Insurance (PMI) on the first mortgage, as its loan-to-value (LTV) ratio remains at 80%, and also helps avoid a jumbo loan if the first mortgage stays within conforming limits.

Specialized loan products, such as physician loans or other professional loans, are available to high-earning professionals. These programs offer low or no down payment options, recognizing the borrower’s strong earning potential and often no Private Mortgage Insurance. However, these loans are limited to specific professions and may have stringent eligibility requirements.

Some lenders also offer low down payment jumbo loan programs. These programs cater to well-qualified borrowers who may not have the full 20% or 30% down payment associated with jumbo loans. Not universally available, and requiring excellent credit and substantial reserves, these programs provide flexible down payment solutions for high-value properties.