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- What Are Netting Escrows & How Does It Work?: The Best Guide - January 2, 2024
- The Secret About Prescriptive Easement: Top Guide 1 Must Know - December 4, 2023
- About Home Equity Loans In Texas And How Can One Obtain It - November 27, 2023
How Much Down Payment on a House
One of the most common questions people ask when they are buying a new home especially if they are doing it for the first time is how much they would need to buy a new home.
Most of the time your loan officer is your best bet to let you know how much money would you have to come up with as a down payment to buy a house.
In this post, we will know how much down payment do you need to buy a new home and the different down payment options that you have.
How your down payment affects your interest rate
Generally, the more money you put down like up to 20-25 percent the better the mortgage interest rate is going to be.
If you are making a down payment of less than 20 percent, generally, you would end up getting a higher interest rate on your mortgage compared to making a more than a 20 percent down payment.
The simple reason behind this is if you are making less down payment the lender has a greater risk in lending you the mortgage.
In an ideal condition, if you have enough money saved for the down payment, to get the best deal in the market make sure you make a minimum of 20 percent down payment.
Typically this is a generic scenario for a conventional loan where the borrower puts 20% down and get the rest 80% loan through a lender.
Different FHA and Conventional loan program options
FHA
FHA loan allows you to purchase up to whatever the county limit is, for where you are planning to buy the property and put a minimum of 3.5 percent of the purchase price as a down payment.
FHA is one of the most common programs out there when it comes to buying homes, especially for first-time homebuyers.
Because they allow lower credit score low down payments and lower interest rates on FHA compared to conventional loans, many homebuyers pick FHA as an option for their home purchase.
The only downside is that you would be paying mortgage insurance for the FHA loans till the time you have the loan. Hence most people refinance their FHA loan after a couple of years into a conventional loan.
Fannie Mae Home Ready
If you have great credit and a good income, however, do not have enough down payment, Fannie Mae’s Home Ready loan is one of the options for you.
It allows borrowers to make a minimum down payment of 3 percent which makes it more competitive with the FHA loans.
The other good thing about this program is that you can use the rental income of the property that you are going to purchase to qualify for the loan.
If you are making a 3 percent down payment, you would be getting mortgage insurance along with it, however, the mortgage insurance in the home ready program is cancellable.
Once you reach your 20 percent equity mark in your purchased home, you can get your mortgage insurance canceled without refinancing.
Freddie Mac Home Possible
This is Freddie Mac’s version of the low down payment program for the borrowers. This is also a conventional mortgage program that requires a minimum down payment of 3 percent of the purchase value.
There are two options in this, home possible, and home possible advantage. Both programs bring benefits to first-time homebuyers.
Though the 3 percent down seems attractive, the borrower needs to qualify for the home possible program. The qualifying factor for the program differs from that of the regular conventional loan.
Conclusion
Apart from the above-mentioned programs, other programs are also good options for first-time homebuyers like VA loans and USDA loans. However, they have a very specific requirement.
In case of a VA loan, you need to be an active or retired military personnel to qualify. And for the USDA loan, the property that you are buying should be in the rural area specified by the USDA.
If you are a first-time homebuyer and looking for a low down payment option to purchase a new home, get in touch with one of our mortgage experts today to know all your possible options.
