We’re going to talk about something that might be a little scary for some: money and your mortgage down payment.
When you’re buying a new house, you need to think about money quite a bit. How much should you have saved up to make that down payment on the home? Typically, we hear 20% as a general rule of thumb, but this may not be possible for first-time buyers. And if it is possible, should you put more than that down?
There are so many questions!
Here are the benefits of various percentages and payment methods you’ll want to consider for when the time comes for your down payment.
Down Payment Basics
What you’ve been hearing is true: 20% is still the standard as far as home down payments go. This shows the mortgage lender that you’re serious, responsible, and a good candidate for a mortgage.
Putting down less might make securing a mortgage a little more difficult than if you have 20% ready to go. The absolute minimum that is often accepted as a down payment is 3.5%.
Still, there are options. If you put down less than 20%, the mortgage lender will require buyers to have private mortgage insurance (PMI), which is insurance on your mortgage that protects the lender from losses if the borrower ends up in foreclosure. These loans come with an annual interest rate somewhere between 0.3% and 1.15% of the loan. Make sure you find out if the PMI goes away once you have established 20% Home Equity or if you will pay if for the life of the loan.
Wealth Building Home Loan (WBHL) is a 15-year loan that comes with a fixed-rate and doesn’t require a down payment. These are made for low- and moderate-income households to help with a home purchase. The monthly interest rate on this loan is almost as low as a 30-year fixed-rate loan, and it helps buyers build home equity at a quicker rate. For more information on how this type of loan works, visit MortgageLoan.com.
First-time home buyers may also want to consider a down payment assistance opportunities that may be available through your state government. These are meant to help first-time low- and moderate-income buyers make their home purchase. This loan can be used towards the down payment or the closing costs.
Should You Put Down More Than 20%?
This really depends on your overall financial situation. For example, if you have a lot of credit card debt that has a high-interest rate, you might want to prioritize paying that off.
For a home buyer with a lot of money saved in the bank, but with a low annual income, making a large down payment may make the most sense. On the other hand, a buyer with a large annual income--but less money in the bank--may find the larger monthly payment and less down payment the best option.
Of course talking with a mortgage loan officer is the best way to find out what you will need. They will get a financial report, take into consideration how much you want to spend on housing each month, and explain all of your options. A Mortgage Lender will also pre-qualify you; they check both your credit and income to let you know just how much house you can afford. They also provide you with the necessary paperwork to submit with your offer to make your offer a strong one. Not all Mortgage Lenders are the same, so a recommend local lender is your best choice.
Benchmark Mortgage is a recommended partner of Lewith & Freeman Real Estate Inc, based upon their service to other satisfied past clients. Please note, the selection of a mortgage broker is exclusively the buyer's and not Lewith & Freeman nor its agents.
Mortgage Calculators
There are great tools out there available to you to help with calculations for the prices of a home you’re considering. SmartAsset’s mortgage down payment calculator breaks it all down for you: the minimum the mortgage type, down payment, mortgage monthly payment, and closing costs.
This is a great place for you to start your research and calculations! They use location-based information to make the data as close to accurate as possible for you.
If you’re an experienced home buyer, we’d love to hear from you. What has your experience been with a down payment? Would you have changed anything about it?
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