Most homebuyers know that a number of costs affect a person’s ability to buy a home. For example, when you are ready to buy, you should be prepared to prepay the down payment and closing costs. However, in addition, the interest rate paid to you on your home loan can also affect the amount of your monthly mortgage payment.
To help you understand these rates and fees, we’ve created a guide to mortgage down payments below. Read on to learn more about what you need to know before you put down a down payment on a property during the home buying process.
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Minimum down payment requirements
First of all, it is important to note that there are many types of loan programs available in the mortgage market. Each mortgage program has its own loan eligibility standards and down payment requirements. With that in mind, we’ve explained in more detail what type of down payment you can expect from the different types of loans below:
- FHA loans: If you get a Federal Housing Administration insured mortgage, you can usually expect to have to make a minimum down payment of at least 3.5% of the purchase price of the home. However, if your credit score is below 580, you will likely need to make a larger down payment of at least 10%.
- AV loans: One of the main benefits the VA offers is that their loans do not come with a down payment requirement, which means you can finance up to 100% of the purchase price of the home.
- USDA Loans: Notably, USDA loans also do not have a down payment requirement. However, buyers who are considering this type of mortgage will be subject to certain property and income requirements.
- Conventional loans: Typically, conventional loans require a down payment of at least 3% to 5%. That said, mortgages with down payments of less than 20% will be subject to a private mortgage insurance (PMI) requirement.
HOW MUCH MONEY DO YOU NEED FOR A DEPOSIT ON A HOUSE?
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Should a down payment be small or large?
When saving money, many people wonder how much their down payment will cost. Truth be told, the answer will depend on the purchase price of the house. However, to give you a better idea of ââwhat to expect, consider the following example: If you were to buy a property for $ 300,000, a 5% down payment would be $ 15,000. Meanwhile, a 20% down payment on the same house would be $ 60,000.
Although you only have to meet the minimum down payment requirement, larger down payments are generally considered better than a lower down payment. On the one hand, a larger down payment will reduce your loan amount, which will help you save money on your monthly payments and may even guarantee you a lower interest rate. On the other hand, you will have more equity in your home, which will come in handy when you need to leverage your larger asset through a home equity loan or home equity line of credit (HELOC).
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Common down payment sources
Finally, there are plenty of ways to find the funds for a down payment on your perfect home. To that end, we have listed a few below for your consideration:
- To save money: This is the most traditional way to fund a down payment, although it may take a while before you are ready to buy.
- Down payment assistance programs: Down payment assistance programs often offer grants or low-interest loans that buyers can use towards their down payment and closing costs. That said, these programs are generally only available to first-time buyers and low-income buyers.
- Retirement accounts: Usually, you can withdraw funds from a retirement account without penalty if you use them to buy a home.
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The bottom line
In real estate, a down payment is one of the biggest costs when buying a home. Yet the more you know about it, the more prepared you can be when the time comes. In light of this, use the information in this article to help you start your journey to homeownership.
If you have questions about your down payment or the rest of the mortgage process, visit Credible to be put in touch with experienced loan officers who can provide answers.
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