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Buying a home is likely to be one of the biggest purchases you’ll ever make, so it’s important to understand exactly what’s in it.
Unless you have enough money set aside to buy a house entirely up front and in cash, you’ll need to take out a home loan — also called a mortgage — to borrow enough money to pay it off.
If you take out a mortgage, you will have to pay what is called a down payment, which is a lump sum of money paid up front when you buy a house. Although the down payment is usually a portion of the total home value, the mortgage or home loan is meant to cover the rest of the home’s value.
Below, Select takes a closer look at how much down payment you should be willing to put down and what to do if you can’t afford to put down too much.
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How much deposit should you pay?
The amount of down payment you pay will largely depend on the type of home loan you choose.
FHA loans, for example, have a minimum down payment requirement of 3.5% of the home’s value. A conventional loan, on the other hand, typically requires a down payment of 5% to 20% of the home’s value, while those who qualify for a VA loan can actually put down a 0% down payment.
Jumbo loans, however, have much higher down payment minimums – usually 10% or 20% – since these types of loans are for people who need to borrow much larger sums of money. Ally Bank and Rocket Mortgage are two lenders that offer jumbo loans; see this article for additional options.
Making a large down payment can actually pay off in the long run. The higher your down payment, the less you will need to borrow through a home loan, which, in turn, can mean that your monthly payments are lower, the total amount of interest you need to pay will be smaller, and you You’ll have more room in your budget for savings or other expenses.
Annual Percentage Rate (APR)
Ask online for personalized rates
Types of loans
Conventional Loans, FHA Loans, VA Loans, and Jumbo Loans
8 to 29 years old, including 15 years old and 30 years old
Generally requires a 620 credit score, but will consider applicants with a 580 credit score as long as other eligibility criteria are met
3.5% if you go ahead with an FHA loan
What if you can’t afford a big down payment?
Making a smaller down payment has certain advantages, allowing you to set aside more of your savings for closing costs, lender fees, renovations that may be needed on your new home, or other home-related expenses. move.
It’s also important to keep in mind that the higher your down payment, the higher the equity in your home will be from the start. Traditionally, homebuyers have been encouraged to put down at least 20% on their home purchase, although today a lower down payment is more common and allows more people access to the property.
If you decide to make a down payment of less than 20%, just know that you’ll have to pay extra each month for private mortgage insurance, or PMI, until you’ve built up 20% equity in the home.
Select identified mortgage lenders that offer additional options for people who want to put down a smaller down payment.
Chase Bank offers the DreaMaker Loan, which allows buyers to make a down payment as low as 3% of the home’s value as long as they meet stricter income requirements.
Another lender, Navy Federal Credit Union, is particularly attractive to those who qualify for a VA home loan, which carries a 0% down payment requirement.
Annual Percentage Rate (APR)
Apply online for personalized rates; fixed and adjustable rate mortgages included
Types of loans
Conventional Loans, FHA Loans, VA Loans, DreaMaker℠ Loans, and Jumbo Loans
3% if you continue with a DreaMaker℠ loan
Editorial note: Any opinions, analyses, criticisms or recommendations expressed in this article are those of Select’s editorial staff only and have not been reviewed, endorsed or otherwise endorsed by any third party.