It is so exciting to buy your first home, but it is more important to find the right down payments and mortgages option that meet your requirements. The down payment is essential since you will have to pay that amount up front to the seller and the rest payment will be paid through the mortgage. The more you will pay; the lower will be the interest rate and the monthly payment.
How much down payment is expected from the buyer?
The average down payment is the 20% of the total amount. But if you are unable to pay 20% down payment then the lender might ask you for private mortgage insurance. And that insurance will protect the lender if you default payment. Generally the insurance costs from 0.15% to 2.5% of the total loan amount.
Why should you choose 20% down payment?
Always consider paying 20% down payment to take the advantage of some prevailing policy and also to avoid buying the insurance policy that also charges a huge amount. Here are the reasons why you should choose 20% down payment.
- More possibility to get a housing loan with lower monthly interest and mortgage:
If you do not meet this demand then there is a possibility that most of the banks will not consider your case. In the current market, there are a fewer options of five percent, ten percent and zero down payment and the scope of getting that kind of loans is very less.
- Will be easy to cope up with the changing rules of the Consumer Financial Protection Bureau:
According to the new rules of the Consumer Financial Protection Bureau, the home buyers need to meet a 43% debt-to- income ratio. That means all your debts including mortgage payments, car loans, property taxes, and student loan should not exceed 43% of your total monthly income. So, if you make 20% down payment for your home loan then you will have to pay lower mortgages and that can be covered within the 43% debt of your total income.
- More down payment means lower mortgage:
Why not choose a lower mortgage option to take a minimum monthly pressure. It is a simple logic, pay more in the beginning; you will have to pay less afterwards. A minimum monthly payment will put less pressure than a huge amount when you have to meet other needs of your life.
- More down payments offer fewer interests:
Banks charges more interests on lower down payments. And in the long run, you will be ended up paying thousand dollars only for the interests of your home loan. But if you pay 20% down payment, you will get flexible and fewer interest rates. So, try to make the deal rational, and make 20 % down payment to get the lower interest rate.
- No more insurance for the payment of your home loan:
If you pay 20% down payment then you will be in the safer side. But if are unable to pay that much then most of the lenders will ask you to buy a Private Mortgage Insurance that will also cost you a huge amount of money.
Always ask for a home loan when you are financially prepared to make 20% down payment. That will help you with lower interest rate and mortgage payments. Need more info? Consult with our friend, Dan Stanton – an expert mortgage broker in Raleigh.
What do banks offer in mortgage?
Banks offer different types of mortgage for home loans with specific benefits. If your monthly payment is more then you can go for a fifteen-year plan. That will help you to save thousands of dollars. Here are the other types of mortgage:
- Fixed-rate Mortgage: In fixed rate mortgage, you will get the knowledge of all your interest rates and monthly payments and will have to pay a fixed interest rate till the end of the term.
- Adjustable-rate Mortgage: The interest rate is fixed, but you can reduce it in future.
- Jumbo Mortgage: Fixed interest rate and the term can exceed up to thirty years.
- FHA mortgage: For this 3.5% mortgage is required. This is helpful those who have less credit.
- Dreamaker Mortgage: Favorable options for those who want to make five percent down payment only.
- Home Affordable Refinance Program: It is for those homeowners who want to refinance their home and here the interest rate is less.
- Veteran affairs: Down payments and monthly mortgage insurance is not required for this mortgage.