Buying a new home can be one of the most important and exciting decisions of your life. You will find, however, that there are many obstacles you will have to overcome in order to actually get into your first home. Financing is a crucial part of buying a new home. Learning about your different financing options will help you to make the most financially responsible decision for the lifespan of your mortgage. Understanding the amount of money you need to put down on your home can help you to negotiate a great rate on your mortgage.
When you are asking yourself how much you should be putting down, you need to find out what type of a buyer you are. Are you what some real estate professionals call a Super Saver? When you are a Super Saver, you may not have a very large monthly income but you are great at saving. When you have a great deal of money in the bank, you will be able to shrink your monthly payments by paying as much as you can right up front. However, if you have a large monthly income but you are not regularly saving money, it can be ok to put down less money up front.
A down payment on an expensive home can seem very daunting. The industry standard for homes is right around 20 percent. This would be around $40,000 for the average home in America. However, while 20 percent may be the industry standard, it doesn’t necessarily have to be the amount that you put down. There are many buyers who decide to put down much more than this amount of money up front. There are also different financing options that will allow for lower down payments to be acceptable.
When you are looking at your down payment options, you need to decide which loan is going to be right for you. There are only certain mortgage options that will allow you to bypass the down payment process altogether. These types of loans include VA loans and USDA loans. Loans that only require a 3 percent down payment include FHA loans and HomeReady loans. If you are looking to purchase a very expensive home, you will have to put down 10 percent with your jumbo loan.
When you are looking at these types of loans, you are only looking at the minimum down payment that you will have to put down to secure your mortgage. It can make a lot of sense in certain situations to put down a lot more cash up front, if possible. In many cases, you will be able to secure a much lower interest rate if you put up a large amount of money. This will allow you to save tens of thousands of dollars over the course of your mortgage. Saving up for a large down payment is especially beneficial when you are buying condos and townhomes. Lenders prefer you put as much as possible upfront on these types of properties.
Having an insurance policy on your mortgage is an important thing to do if you want to be approved for most lending situations. These mortgage insurance policies can add a great deal to your monthly payments. With most loans, you will be able to greatly lower your mortgage insurance premiums by putting down a large sum of cash at the beginning of your mortgage. The less amount of money you are borrowing, the less risky it is for the lender. This is why the mortgage insurance premium percentage can go down greatly with a substantial down payment.
When you look at homes, you start to get very excited. You think of how incredible it would be to buy your house cash. However, instead of buying your home cash you do the next best thing and put down a huge down payment. When you are doing this you have sometimes doubled or even tripled the amount of money you have invested in any other assets. This can be very risky when you are unsure of market conditions. 2008 was a great example of homeowners who lost a lot of money by putting down a large sum of money up front. Homes that were worth $800,000 were suddenly being appraised at $350,000. While a real estate market crash of this magnitude is not likely to happen again any time soon, the volatility of the real estate market poses the question of how much money you actually want tied up in your home. It can be smart to have your money diversified in stocks, bonds, commodities, business assets, and your home.
There really isn’t any limit to how much you can put down on your home. With the exception of buying your house fully outright in cash, you can put down a very large down payment if you feel as though this will be a solid investment for you. However, if you are trying to put down the minimum amount of money on your home, you must follow the regulations for the type of loan you will be using.