Understanding Down Payments

It is one of the biggest decisions of your life and many people save for years, but what is the right amount to have at the ready?

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What is the right amount after all?

It's an open ended question, but a question that really depends on your situation.
Going the conventional way.

The traditional down payment amount is 20%. For example, if the home you’re looking to purchase is $200,000, the down payment will be $40,000. Having this amount will save you from paying mortgage insurance, which is a fee that’s added to your monthly payments that protects lenders in case you’re unable to pay the mortgage. But what if you want to buy a home and don’t have the full 20% saved?

Options are available!

97% Loan-to-Value (LTV) Option — A conventional mortgage in which your loan amount is 97% of the value of the home, and you only have to make a 3% down payment. Mortgage insurance will be required.

Lender-Paid Mortgage Insurance (LPMI) — If you can’t make the full 20% down payment, we may be able to pay your mortgage insurance for you. However, your interest rate will be slightly higher to cover this expense.

Going the government way.

The U.S. Government offers a variety of home purchase programs that help make homeownership possible for more people. These programs are offered through agencies such as the Federal Housing Administration (FHA), the U.S. Department of Agriculture (USDA), and the U.S. Department of Veterans Affairs (VA). Each of these agencies offers specific loan programs with different down payment requirements.

FHA Home Loan — A great option for first-time buyers and those with financial or credit setbacks. The required down payment amount is 3.5%, and a parent or relative can be a co-applicant on the loan with you. Mortgage insurance will be required.

FHA 203(k) Rehabilitation Loan — Want to buy a home that needs repairs? With a FHA 203(k) rehabilitation loan, you can finance a home and many qualifying repairs. Two versions are available depending on the type of repairs required and their costs. Mortgage insurance will be required.

USDA Rural Home Loan — If the home you’re looking to buy is in a designated USDA rural area, you may be able to qualify for a USDA home loan. This program provides up to 100% financing, meaning no down payment is required.

VA Home Loan — As a benefit for your service to our country, the VA works with lenders to provide veterans a flexible solution for buying a home. You’ll get a competitive interest rate and don’t have to make a down payment unless you want to.

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