First Time Home Buyer's Down Payment
Buying a first home is one of the most exciting, most terrifying, and most amazing experiences a person has. Owning a home is the traditional American Dream, and it’s also something many see as a good investment. The real estate market is ever-changing, but this doesn’t mean it’s not a great investment to purchase a home and put money into the market. However, not all first-time buyers believe they can afford a new home. There is the matter of a down payment, which is often more than buyers can afford. Fortunately, there are options out there even if someone doesn’t think buying is in the cards. It helps for potential buyers to understand everything there is to know about first-time homebuyers and down payments.
Recommended
The recommended down payment on a new home is at least twenty percent of the purchase price. For example, if a house is listed for 300,000 dollars, the buyer should have sixty thousand dollars to put down, leaving a financed amount of 240,000 dollars. This allows buyers to forgo paying private mortgage insurance, known commonly as PMI. Private mortgage insurance is expensive, and no one wants to pay. It can be as much as one percent of the entire loan amount annually. Lenders require buyers to pay PMI if they finance a home for more than eighty percent of the value, which means a 300,000 dollar home without a down payment could cost a buyer as much as three thousand dollars per year, which breaks down into an additional 250 dollars per month added to the mortgage payment. It’s unaffordable, but lenders are hesitant to give buyers money without a down payment to provide some equity in the home.
Continue reading to learn about the typical amount families will put down on a home.
Typical Amount
The typical amount of money a family puts down on a new house is anywhere from five to ten percent even though it’s recommended buyers put down at least twenty percent. It’s a good idea to put more money down not only to avoid paying private mortgage insurance every month but also to help buyers have equity in their home. Furthermore, a bigger down payment means buyers can secure a more affordable mortgage payment every month. The lower the mortgage payment, the more likely the buyer is to pay the payment in full and on time. Homes are becoming more expensive, and buyers are finding it more and more difficult to save money for a down payment, so the federal government is stepping up to the plate to allow buyers a chance to buy a home without a twenty percent down payment and no PMI.
Continue reading to uncover the details on FHA mortgages.
FHA Mortgage
An FHA mortgage, backed by the federal government, allows first-time homebuyers a chance to become homeowners without a traditional twenty percent down payment. As long as the lender has a credit score of at least 580, they can take out a loan for up to 96.5 percent of the total value with a 3.5 percent down payment. If the buyer’s credit score is lower than 580, they must put down ten percent to buy a home. The down payment money used to buy a home with an FHA loan can come from a gift from another friend or family member, be a grant given to the buyer from the state, or come from anywhere else. This loan is one marketed to and issued to low-income families with a low credit score. This kind of loan is issued to those who meet the requirements that are largely the same in most states.
Continue reading to learn information about VA mortgages.
VA Mortgages
VA mortgages are for the men and women who served in any branch of the United States military and their families. The Department of Veterans Affairs backs VA loans issued to current and former military members. VA loans are quite strict, and it can take significantly longer to secure a loan like this than a traditional loan. However, veteran’s benefit significantly from this loan and what it means for them. When someone applies for a VA loan, they are not required to make any down payment, and they don’t pay private mortgage insurance even if they finance one hundred percent of the home's value. There are strict stipulations regarding the application for a VA loan, including the fact most areas in the country have purchase limits. Unless a person is buying a home in a city with a high cost of living, the loan cannot exceed 453,100 dollars. There might not be a down payment requirement, but there is a funding fee. First time VA borrowers must pay 2.15 percent of the price of the home as a fee, and that fee gets more expensive each time a buyer uses a VA loan.
Continue reading to learn about how conventional loans work in this context.
Conventional Loan
Unlike a VA loan or an FHA loan, a conventional loan is not backed by any branch of the federal government. It is simply a traditional loan used to purchase a home. There are many different types of conventional loans, and each one comes with its own set of requirements and rules, though each one does require at least a twenty percent down payment or the borrower must pay for private mortgage insurance. Conforming loans follow the guidelines in place by Freddie Mac and Fannie Mae. Sup-prime loans are geared toward buyers who cannot afford a traditional mortgage because their credit score is too low. Jumbo loans are simply those that exceed a typical loan amount. Conventional mortgages are excellent for individuals who have excellent credit and a down payment, but the buyer must also have a low debt to income ratio. The guidelines for a traditional loan are conservative, but buyers can rest assured they are getting a good value and they can walk away with a good loan and equity in their new home.