July 12, 2021
Details on A Down Payment
You’re ready to buy a house and the only thing standing in your way is the down payment. This is often the biggest obstacle in homeownership. A down payment is the money you pay upfront to purchase your house. This payment is expressed as a percentage of the full price and is an initial step to becoming a homeowner.
Down Payments for Different Loan Types
The average down payment is between zero to 25% for most types of mortgages. This can vary depending on your mortgage lender, the type of loan, and your credit score.
For example, FHA loans are backed by the Federal Housing Authority and require as little as 3.5% down.
VA loans are backed by the U.S. Department of Veteran Affairs and do not require any money down. They are available to those who are serving, who have served, or their spouses.
USDA loans are backed by the U.S. Department of Agriculture and also require no money down. People eligible for these loans include rural and suburban homebuyers who meet the income requirements.
A more conventional loan like the Fannie HomeReady or Freddie Mac Home Possible mortgages are not backed by the government but offer rates as little as 3% down.
There are many ways to procure the funds for a down payment. If you sold your house and are buying a new one, this money can certainly be used. You can also use your personal savings, sell your assets, or take advantage of down payment assistance programs (DPA). DPA programs are offered by some employers, nonprofit organizations, and government agencies.
If you’re looking to buy a house now, practice putting money away in preparation for homeownership. Your savings will grow and you’ll be one step closer to purchasing your house. Saving money may take some time but is important to avoid making larger monthly mortgage payments unnecessarily. You will also likely get a lower interest rate with a larger down payment.
Bigger is Not Always Better
With that being said, making a larger payment is not always better. It’s not beneficial to deplete all your savings to increase your down payment. Without your savings, you are vulnerable to emergencies and financial disasters can happen. At the same time, don’t put off buying your home for too many years. In the time you’re waiting to save up for a larger down payment, the sales price is likely to increase.
The decision of how much money to put down on your house can be a difficult one that depends on multiple factors. Especially for first-time homebuyers, this can be extremely stressful. Take our advice and don’t let a down payment get in the way of you and your family’s dream house.
As always, let our team at Method Mortgage lead you to the smartest way home. Give us a call today!