Listen to advertisements for mortgages and you will hear everything under the sun regarding terms. So, what exactly is a down payment for a house?
What Is A Down Payment For A House
Considering today’s market prices for homes and how they have drastically risen, mortgages have become a necessity when purchasing a home. With home prices well over half a million for standard homes in many areas, almost nobody can afford to buy a home out of pocket.
For that reason, almost every prospective homeowner looks to lenders to receive home loans or mortgages. These mortgages work by the lender basically buying the home for you and owning the home until you slowly buy it from the bank with monthly payments. The percentage you own is based on how much the value of the home rises after you buy the home and how much of the loan you have paid off.
The primary way to consider your stake in the home, and also to receive a better mortgage deal, is to offer a down payment on the home. Down payments are money that you put towards the cost of the home, meaning it lowers the amount the lender puts towards the home.
Down payments work for you two fold.
For one, they increase the total amount of the home you own from day one and decrease the amount you will need to borrow. Two, they also show the lender you have some money put away and they will be willing to offer you better rates considering how much you can put down.
How much is the typical down payment?
A standard down payment is typically 20%, but this amount can vary. By investing this much upfront, you can avoid mortgage insurance and will lower your monthly payments.
In general, the worst rates are for no down payment loans and you can receive the best rates, as much as 2 to 3 percent less in interest, by putting around 20 percent of the homes value as a down payment. If you have poor credit, you can get nervous lenders to issue a loan if you put down 25 percent of the sales price.
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Down payments are an integral part of achieving the best mortgage possible. If you don’t have any cash put away towards the home, you are risking paying tens of thousands of dollars, if not more, in additional interest compared to what you would be paying had you set aside some money to put towards the home. All and all, it just makes sense to maximize your down payment as much as possible when purchasing a home.
What if I am a first time home buyer?
Are you a home buyer looking to buy your very first home? Do you believe you can make the mortgage payments on the home but just don’t have enough cash on hand to make the down payments? Are you not able to buy the home because of this mortgage down payment problem? If this defines you, then don’t be worried. There are many programs out there that can help you to make the down payment and move in to your very own home.
Firstly, check with the FHA – the Federal Housing Association. The FHA often offers many programs to various people who can’t make the down payment on their home.
The Department of Housing and Development is another organization that has many programs in place to allow first time buyers to be able to buy their very own home and get over the hurdles of down payment costs. Both of these organizations should be sought out right away and you should contact them and see what sort of programs and assistance you might be eligible for.
For minorities and low income families in particular, there is another big program in place that can be of great assistance. If you fall into one of those categories, you may be eligible for the American Dream Down Payment Initiative.
Passed in 2003, ADDI allows for eligible first time home buyers to receive as much as $10,000 in assistance for making the down payment on their home.
In addition to these organizations, there are also many programs in place by states that seek to encourage first time home buyers. These programs often offer grants and other assistance to first time home buyers so that they can meet the down payment requirements for their home. Make sure to do an internet search for the housing department in your state to seek out information on programs relevant to your location.
First time home buyers who can’t make their down payment should not worry, there are many programs in place that can help them. If you are a first time home buyer and need assistance, you can seek out many of these different groups so that you can be able to make the down payment and be able to move in to a home of your very own.
You can be approved for a home loan without a large down payment, but you should get into the habit of saving your money to put toward your first home.
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