What is a down payment and how much do I need to buy a home?
So you are anxious to buy a home but your bank accounts aren’t? You know a bigger down payment can shrink your monthly mortgage payments — and you can avoid paying private mortgage insurance (PMI) — but no matter how hard you shake the sofa cushions, you’re still coming up short? .
To explain how bankers and real estate agents talk about down payments, let’s say you buy a house for $100,000:
- A 3% down payment means that you pay the seller $3,000 and you borrow $97,000.
- With a 20% down payment, you would pay the seller $20,000 and you would borrow $80,000.
Sometimes you’ll hear a phrase like, “Alex put 20% down on the house.” That means that Alex made a 20% down payment.
The money for a down payment can come from:
- Your own savings.
- The money you get when you sell a house.
- Gifts and grants from family, employers and nonprofits.
Why down payments are required
When you make a down payment, you risk losing that money if you can’t make the house payments and end up in foreclosure. This gives you an incentive to make your mortgage payments. That’s why the lender requires a down payment.
Minimum down payments
Most mortgage lenders require a down payment of at least 3%. FHA loans (mortgages insured by the Federal Housing Administration) require a down payment of at least 3.5%. Depending on your credit history, the type of dwelling and your reason for buying, the minimum down payment could be 5%, 10%, 20% or more.
The more places you can find cash, the sooner you can start touring homes. Here’s a checklist of sources for down payment money to give you a start towards homeownership.
Remember, the first step in any home search process is to get pre-approved, my go-to lender is Vic with Cross Country Mortgage:
Brecksville, OH 44141
Once you are pre approved…Let’s find you a home!!
Katy Dix Brahler