How much down payment do you need for a home purchase?
One of the biggest fears first time homebuyers have is whether they have enough money to make a down payment to purchase their home. Considering its one of the biggest payments you’ll ever make, the fear is more than justified. Determining the amount is paramount in the home buying process. Let’s look at how much you’ll need.
Standard down payment
Most lenders consider 20% an ideal down payment. For example, a $300,000 home would require a $60,000 payment. Having this cash in hand will certainly improve your chances of getting the loan and may even secure you are lower overall mortgage rate. Other benefits include:
- Immediately gain more equity in your home
- Lower monthly payments
- More negotiating room with your mortgage banker
Lower down payment options
There are options for those who do not have the standard 20%. In many instances, you may be able to purchase a home for as little as 3.5% down. The Federal Housing Administration offers FHA loans, which helps mortgage bankers by guaranteeing a portion of the loan balance. The Department of Veterans Affairs also offers access to loans that can help service members past and present secure low down payment loans.
A lower down payment will require you to purchase Private Mortgage Insurance (PMI), because in the eyes of the lender your loan is considered risky, and the PMI will help protect them from loses.
Which option is right for you?
The best thing to do is thoroughly discuss your financial picture and your home purchasing ideas with a reliable mortgage professional. A reputable mortgage banker will have your best interest in mind and help you decide which is best for you.
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