What You Need to Know About Down Payments
When taking out a mortgage, the down payment is a payment made in the amount of a percentage (usually 20%) of the cost of the loan. Below are common questions about this part of the homebuyer's process. 1. Does the size of my down payment matter?
Yes, the size matters quite a bit. As a rule, a lender expects 20% of the total cost down. If you can't do this, there are ways around it, but you will end up paying a lot more over time if you take this route. You will likely have to pay mortgage insurance, but it may be worth it for you to get into your own home. 2. I don't have the cash; where can I find money for my home's down payment?
Obviously, you can ask family for the money, but there are some other options that you may not have thought of. Consider dipping into a 401K or a stock/ bond that you have. This money is yours, and it's there for a reason. For more ideas read Creative Funding Ideas for Those Who Don't Qualify for Conventional Loans
. 3. I only have about 10% to put down, not 20%; should I buy the house anyway?
If you believe that you will live in the home for at least 5 years, yes, you should go ahead and buy. You should be confident in your decision before you make the commitment to pay the extra fees that come along with a partial down payment. In general, however, the investment will pay for itself if you plan on staying. 4. Which is more important: a 20% down payment or the fact that I have the money to make a mortgage payment?
Making the payments on time, when it comes to credit, is more important. It's usually possible to pull together a down payment, but if you can't make your monthly loan
payments on time, the decision will follow you for a long time.
As you can see there are various options, even if you don't have the 20% down payment. While it's definitely best, there are many people who pay extra fees and still end up being thankful for their new homes
and feeling positive about their decision. In other words, don't let the 20% down payment keep you from buying if you have other options.