One of the major challenges for homeowners, especially first-time homebuyers, is saving for a down payment. But before you start saving and figuring out how much of a down payment you need for your home, let’s take a closer look at what exactly a down payment is. What exactly is a down payment? A down payment on a home is the up-front payment a homebuyer provides in order to secure the amount being borrowed.
How much do you really need for a down payment? Mortgage lenders may require a down payment of between 3% and 20% to be approved for a home loan, and different loan programs have different requirements. Many homebuyers still believe they need a minimum of a 20 percent down payment to buy a home, but that’s no longer the case.
Did you know New American Funding offers several loan programs that make it easier to qualify and buy your dream home with little to no money down? Make sure to look at all the loan options available to find the best mortgage for your needs.
How much should you pay? Often, you may be able to choose the amount of down payment to make, and this decision may not always be easy. Some homebuyers believe a bigger down payment is better, while others may think keeping your down payments as small as possible is more suitable. This will all depend on your homebuying needs and your financial circumstances. Make sure you evaluate both the pros and the cons to make your decision.
A bigger down payment will help you minimize borrowing. The more you pay upfront, the smaller your loan may be. There are also some additional benefits to making a larger down payment, which include:
- Lower rates – You may qualify for a lower interest rate if you put more down.
- Mortgage insurance – When buying a home, you may be able to skip the mortgage insurance (PMI) and potentially get rid of other fees with a larger upfront payment.
- Lower monthly payments – A lower monthly payment could allow you to use the extra money on other things, such as home improvements.
A smaller down payment means you don’t have to come up with as much money up-front, and this may have potential benefits which include:
- Buy sooner – Saving for a 20 percent down payment, may take a while
- Home improvements – By not providing a large down payment, you may have extra cash on hand to do a few home improvements and achieve your dream home.
Of course, the down payment amount is ultimately your choice, but keep in mind the minimum amount will depend on which type of loan program you qualify for.
Do you have to pay it all at once? Generally, a down payment isn’t paid all at once. Instead, you may split it up in two payments. The first payment will be taken when you sign the purchase contract and the final payment will be at the time of your loan closing.
Down Payment by loan type: New American Funding offers several loan programs with low down payments, which include:
- Conventional as low as 3% down
- FHA as low as 3.5% down
- VA and USDA loans no down payment required
- Jumbo loans as low as 10% down
With many loan options available, don’t let a down payment stand between you and your dream home. If you’re having trouble saving for a down payment, you should know that New American Funding has loan programs and down payment assistance programs that you could qualify for. Make sure you speak with a New American Funding Loan Officer to learn your options and don’t forget to use our mortgage calculator to estimate your monthly payments.