Once you've found the home of your dreams, you'll be faced with financial decisions. Even though you have been pre-qualified, the amount of down payment will be your first consideration.
How much should you put down? And how does the amount affect your mortgage? Should you put down the least amount required, or as much as possible? The following are some tips and information you may find helpful in making the right decision for you.
How much should you put down? And how does the amount affect your mortgage? Should you put down the least amount required, or as much as possible? The following are some tips and information you may find helpful in making the right decision for you.
Of course, you are always dependent on your specific financial situation. Very often first-time buyers are scraping together every available cent to make the minimum down payment. They may consider themselves fortunate to be able to do just that.
If you have more cash available, there are two ways to go. Some experts feel that you should make the smallest down payment that's acceptable to your lender. You will then have cash for emergencies, decorating, and any renovation that you want to do right away. You could also invest the extra funds. Weigh your options in dollars and cents. If you're trying to decide between putting 15 percent versus 20 percent down, and that difference is $5000, go with the 20 percent. You'll then save the cost of the PMI (Private Mortgage Insurance) which can really add up.
Generally, a 20% down payment is thought to be standard. If your home costs $100,000, you would be expected to come up with $20,000 in cash for the down payment, in addition to the closing costs. Many lenders believe that 20% down gives the homeowner a larger equity stake in the property, and thus decreases the likelihood of default.
Lenders today recognize that 20% of the purchase price is a great deal for most first-time buyers. As a result, different mortgage options have been developed to require a smaller down payment. For example, there are several mortgage options that will allow you to put down 10-15 percent. Conventional lenders will allow a smaller down payment if you agree to purchase private mortgage insurance. This insurance is paid monthly, along with your mortgage, until you have earned at least 20% equity in your property.
An FHA loan will require 3.5%-5% down. If you put down 3.5 percent, the FHA will accept a Community Development Block Grant, if one is available and you meet the guidelines, to make up the two percent difference.
A loan from the Veterans' Administration (VA) doesn't require any down payment. These loans are offered at a fixed rate that is set by the government, and the fees are low. These loans are available to honorably discharged veterans of the United States Armed Forces.
On the other hand, there is the argument that the more you put down, the less you pay back. The less the mortgage that you'll take and the less interest you'll end up paying. A greater down payment may eliminate the cost of private mortgage insurance. Talk to your lender, and run the numbers on a variety of scenarios. Then you can proceed in the manner that best serves you.
Copyright PropertySource Network 2009
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