Few people purchase real property with cash. In most cases, home buyers only put down a percentage of the home’s purchase price, relying on a mortgage lender to supply the rest. The rest of the money the home buyer pays is called the down payment.
How much of a down payment do I need?
This depends on the purchase price of the home. As a general rule of thumb, mortgage lenders prefer to issue home loans to borrowers with a down payment of at least 20% of the purchase price. That means if you intend to purchase a home with a price tag of $400,000, your down payment should be at least $80,000.
Do I really need 20%?
Although a 20% down payment is preferable, it’s not necessarily mandatory. Plenty of homeowners bought their houses with a smaller down payment. Some people put down 10% or even 5%.
Could I put down less than 5%?
Home buyers who have difficulty getting approved for a mortgage through traditional lenders might consider getting an FHA loan. FHA financing allows you to purchase a house with as little as 3.5% down. FHA loans are also ideal for borrowers with credit history issues. There are no income restrictions on FHA borrowers, although you will need a favorable debt-to-income ratio.
What are the benefits of having a 20% down payment?
One of the clearest benefits of putting more money down on your home is that you’ll pay less in interest over the life of the loan. You’ll also own more equity in your home right from the start. You may have smaller monthly payments or a shorter life of the loan. Another benefit is that you won’t have to purchase private mortgage insurance (PMI), which would require you to pay a premium every month.
Coldwell Banker Distinctive Properties is the real estate agency of choice for homeowners and home buyers in Steamboat Springs, CO. Their real estate agents can help you find the perfect property to purchase or advise you on selling your home. Call their office at (970) 879-8814.