Trying to figure out how much down payment you need?
How Much Down Payment
Conventional wisdom says that you need a least 20% of the purchase price in cash in order to buy a home. I’m sure that you’ve heard that. And there’s a good reason why you should have 20% down. However, it’s not necessary. Let’s look at some of the options.
A number of different low down payment mortgage options are available. A popular option is the FHA, (Federal Housing Administration) mortgage. With this, you can purchase a home with as little as 3.5% down. With an FHA mortgage, mortgage insurance is required. And the cost of the mortgage insurance is paid with your monthly payment.In addition, there’s an upfront charge which is part of your closing costs.
If you’re a veteran, you may qualify for Veterans Administration benefits. One benefit is the ability to purchase a home with nothing down. If you purchase with a VA mortgage, there will be a funding fee. This is paid up front but can be added into the mortgage balance. As a result, you’ll make monthly payments on the funding fee.
Conventional financing is an option which may actually work out better. Typically, conventional financing is the 20% cash down option. However, qualified borrowers can get a conventional loan with private mortgage insurance or, PMI.
A conventional loan with PMI can quite often allow you to buy a home with as little as 3% down. However, the larger the cash down payment, the lower the mortgage balance. Therefore, the lower the monthly payment. Rather than FHA mortgage insurance which is paid up front, and added onto the original mortgage balance, the private mortgage insurance lets you cancel the insurance once the home’s value has reached 20% equity. In addition, there are no upfront cost added to the closing costs with a conventional mortgage with PMI.
Which One Is For You?
Is it finally time to buy a home? Mortgage rates are still low. However, my crystal ball is a bit cloudy but it seems they’re starting to slowly rise. It could be that there may never be a better time for you to buy home than now. After all, many people can afford a slightly higher monthly payment, but it may take a long time to save the full 20%.
By continuing to wait, the cost of buying a home in the future will only increase. And the rising interest rates will be part of the increased cost. By waiting, the rise in home prices may drive it so high that you won’t be able to buy a home.
If you don’t have 20% for the down payment, speak with a mortgage representative to learn about your options.
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