Sure, it can be a daunting task to come up with enough cash for a down payment on a purchase mortgage. Oftentimes, it is one of the single largest deterrents for prospective home buyers. So how much do you really have to have?
A lot of lenders would like to see 20% down payments. In Southern California’s Orange County, home prices hit $429,000 in April, the highest in 7 1/2 years. That’s $86,000 on a $429,000 home. By having a down payment of 20%, lenders will feel a lot better about your finances. To start with, your chances of getting a loan approval are increased. Your mortgage interest rate will be better. There will be no requirement for mortgage insurance or getting a second mortgage. Property taxes and insurance are also not required to be impounded. More importantly, your monthly mortgage payment be a lot lower.
Okay so you have a down payment but you’ll also need to have your loan closing costs too. If that starts to break the piggy bank, let’s check out a few reduced down payment options.
It is possible to purchase a home with only 3.5% down.
The government agency known as the Federal Housing Administration ( FHA) helps home buyers, particularly first time buyers, to get approved for a residential mortgage. The FHA guarantees a percentage of the loan balance which helps mortgage lenders. This one of the big reasons why borrowers are able to come in with little money down to the tune of just 3.5%.
If you have served in the military or still on active duty, or are living in a rural area, you might have the benefit of no money down programs from the Veterans Affairs or the Department of Agriculture’s Rural Development.
Is Less Down Payment Good or Bad?
Most borrowers would like to put down $15,000 instead of $85,800 on a $429,000 home. How does that zero down program sound? There are some small details in the pudding you must not overlook.
A down payment less than 20 percent causes you to become a greater risk to the lender. That’s why it will seek out assistance from the FHA to assure a portion of the loan. It’s known as mortgage insurance. An upfront fee will be charged and integrated into your monthly payment.
While the VA financing programs doesn’t call for mortgage insurance, it will charge an “upfront funding fee” for most service members.
The down payment is only the initial hurdle to overcome. Speak with a lender to find out the rest and it’ll come second nature to you as the process is not very difficult to get through.