Ways to Buy a Home
So you want to buy a home, but you are not sure how much the down payment costs.
First and foremost, when it is time to buy a home you will be asked to pay the entire cost of the home. However, since (chances are) you don’t have hundreds of thousands of dollars sitting around to pay in full, you will need to cover the cost by:
1. Paying, upfront in cash, a certain percentage of the amount due, i.e. the down-payment.
2. Pay the rest of the cost with a loan.
Using a Loan
There are many factors that go into the down payment of a home, but for simplicity sake, know that the cost of the down payment ultimately depends on the loan type.
While the minimum down payment you need is 3.5% (with an FHA loan for example) any real estate expert will tell you to save a minimum of 5% of the cost of the house, in cash, so that you can qualify for a conventional loan.
If you put down a percentage lower than 20% on the conventional loan you will need to also pay mortgage insurance — an insurance that protects the lender if you choose to stop paying your loan. That said, if you are able to put down more than 20%, your monthly mortgage payment will cost much less.
In reality, most people don’t have the budget to pay 20% or more of a down payment, upfront. That’s why it is critical to first know what size loan you qualify for, as this will impact the cost of the down payment.
To make sure you are fully informed, consult with a realtor who is trained to answer complicated questions like “how much do I need for a down payment?”
We are always here to help.
