March 29th, 2018 6:59 AM by Jackie A. Graves, President
What is a down payment on a home?
The down payment is money you give to the
home’s seller. The rest of the payment to the seller comes from your mortgage.
Down payments are expressed as percentages. A down payment of at least 20
percent lets you avoid mortgage insurance.
To explain how bankers and real estate agents
talk about down payments, let’s say you buy a house for $100,000:
Sometimes you’ll hear a phrase like, “Alex put
20 percent down on the house.” That means that Alex made a 20 percent down
The money for a down payment can come from:
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 percent. FHA loans (mortgages insured by the Federal Housing
Administration) require a down payment of at least 3.5 percent. Depending on
your credit history, the type of dwelling and your reason for buying, the
minimum down payment could be 5 percent, 10 percent, 20 percent or more.
today for an FHA loan.
A few limited mortgage programs require no down payment or
a very small one.
Down payment and mortgage insurance
When you make a down payment of less than 20
percent, you must buy mortgage insurance. There are two main types:
Fees for small down payments
In many cases, lenders charge fees to
borrowers who make down payments of less than 20 percent. Those fees are on top
of mortgage insurance premiums. The smaller the down payment, the higher the
fees, which are paid at closing. Sometimes the lender charges a higher interest
rate in lieu of the fees.
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the best deal today.
Bigger down payment = more house
Finley and Kerry each can afford to spend
about $925 a month on a house payment, excluding taxes and homeowners
insurance. Kerry has $15,000 more saved for a down payment and can afford to
spend about $32,000 more for a house.
Smaller vs. larger down payment
Down payment amount
House price: $167,667
Down payment amount: $5,000
Percent down: 3
Monthly principal and interest: $776.60
Monthly PMI: $149.11
Total monthly payment: $925.71
House price: $200,000
Down payment amount: $20,000
Percent down: 10
Monthly principal and interest: $859.35
Monthly PMI: $66
Total monthly payment: $925.35
Assuming a 4% interest
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