February 23rd, 2017 5:16 AM by Jackie A. Graves, President
If you're in the market to buy a home, the amount of your down
payment is likely top of mind: three percent, five percent, 10 or 20.
There's no right answer for everyone; what is right for you depends on some
key factors, namely your savings and monthly budget.
You've probably heard the rule of thumb that you shouldn't buy a
home unless you can put 20% down. However, a growing number of borrowers
are putting down between 5 and 10%. Additionally, you can put down as little as
3% through Freddie Mac's Home Possible
It's true — the more you put down, the lower your monthly mortgage
payment and the less you'll owe the bank. It's also true that homebuyers who
put at least 20% down don't have to pay Primary Mortgage Insurance (PMI), an
added insurance policy that protects the lender if you're unable to pay your
mortgage. However, if putting 20% down will deplete all of your savings and
leave you with no financial reserves, it's probably not in your best interests.
While you'll have to pay PMI for a conventional loan with a down
payment of less than 20%, you'll still be able to take advantage of today's low
mortgage rates and affordable home prices in most areas of the country. Plus,
when you reach 20% equity in your home, you can drop the PMI monthly payments.
Monthly Mortgage Payment
*Assuming an insurance rate of
0.51%; this cost can be cancelled from your payment once you reach 20% equity
in your home for conventional loans, but not FHA loans.
not include property tax and homeowner's insurance payments.
Remember to factor in closing costs, also called
settlement fees, that will need to be paid when you obtain a mortgage –
typically between 2 and 5% of your purchase price.
evaluate your finances to determine how much you can afford and talk with your lender or housing
professional to get the facts and discuss the best down payment
option for you.
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