A down payment can be a daunting piece of the home buying process, but it does not need to be. Learn the facts about this process as you move one step closer to becoming a homeowner.
What is a Down Payment?
A down payment is a critical piece of the home-buying journey. Basically, it is a sum of money the buyer pays the seller to lock in the purchase deal. The remaining balance of the home is typically paid by a #mortgage. The down payment shows the lender financing the mortgage that the buyer is serious about the investment and is less likely to default on the loan.
How Much is a Typical Down Payment?
A down payment will be a percentage of the loan. A traditional down payment has been 20% of the loan. On a $200,000 home, 20% would be $40,000. This is a large sum of money, and the fear of having to put 20% down has prevented many individuals from starting the home-buying process. Thankfully, you don't need 20% down to buy a house!
There are many loan options that require much less than the traditional 20% down. For example, FHA loans require only 3.5% down. On a $200,000 home, that decreases the potential down payment from $40,000 to $7,000. That is a huge difference!
The amount of your down payment does impact your home-buying journey. By putting down a larger down payment, you may be given a lower interest rate. This means you will pay less over the life of your loan. Also, if you are buying during a competitive sellers' market, a larger down payment may help you secure your dream home when there are multiple buyer offers. The amount of your down payment may also impact whether or not you have to pay private mortgage insurance. Speaking to a local mortgage broker is the best way to review your specific scenario and learn more about potential implications for your specific situation.
Don't be scared by down payment myths! Watch to learn the facts.
Are There Any Down Payment Supports Available?
State and federal governments are regularly unveiling programs that include down payment assistance, especially for first-time homebuyers. Many times, these programs are based on your profession, purchase price of your home, area in which you will live, etc. Speaking to a local mortgage professional early in the home-buying process will help you learn of any programs that may pertain to you.
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This article is accurate and true to the best of the author’s knowledge. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters.