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What Should My Down Payment Be?

How to Figure Out Your Ideal Down Payment

Are you brand new to the idea that home ownership could be your next step in life? If you’re thinking of taking a leap and purchasing your first home, then congratulations! Becoming a homeowner is a very big step. One of the most important questions you want to ask when you’re getting ready to buy a home is: how much can I afford to spend on a down payment?

Here at Options, we recognize that securing the cash for a down payment on a home can be very daunting. In some cases, it can even be a huge roadblock for many hopeful home buyers. But how much money do you really need to set aside for an initial down payment? Is it a requirement to put down the classic downpayment when you purchase a home?

The Basics: Getting to Know the Down Payment

To get started, it’s important to understand what constitutes a down payment. According to NerdWallet, “a down payment is the cash you pay upfront to get a home loan. It is deducted from the total amount of your mortgage and represents the beginning equity — your ownership stake — in a house and property.”

Keep in mind, down payments do not comprehensively cover all of the initial, upfront costs when you buy a home, but we’ll talk about that more in a little bit.

Talking Numbers: Do I Really Need a 20% Down Payment?

You’ve probably heard relatives and Realtors alike advocate for the magical 20% down payment. And while it’s true, most lenders do prefer a 20% down payment when you purchase your home, it’s also not necessarily a hard and fast rule.

According to Marietta Rodriguez, vice president of lending for NeighborWorks America and multiple national home ownership programs, “the narrative that in order to buy a house in America today you need 20 percent down is just not true. There are a lot of different products that offer low down payment options.”

But before we dive in to other down payment options, we’d be remiss if we didn’t highlight a few benefits that accompany making a 20% down payment:

  • You’ll pay less in both upfront and ongoing fees,
  • You’ll accrue more equity – the amount of your home that you actually own, and
  • You’ll secure a lower monthly payment.

Here’s the thing: the down payment is only part of the costs you pay when buying a home. There are loan closing costs, utility adjustments, and various other expenses that will deplete your hard saved cash.

So if that 20% is starting to look terrifying given all of the other costs of buying a home, looming in the background, then consider alternative down payment amounts.

Alternative Down Payments When Purchasing a Home

Making a smaller down payment can be a great option for prospective homeowners who are short on upfront cash, or who are eager to reserve their money for other costs associated with purchasing a home. And there’s good news: typically, if you otherwise qualify for a mortgage, and if you have good credit, there are plenty of lenders who will work with 10% (or even lower) down payment amounts.

But how much should you pay? Well, it depends. Each case is unique, but there are Fannie Mae and Freddie Mac loan options with down payments as low as 3%. To figure out what you should spend on a down payment, considering following this checklist:

  • Outline your buying costs: what are you paying up front, aside from the down payment? Are there home repairs necessary, for example? Factor these additional costs into how much you want to spend on a down payment.
  • Discuss your loan options with a financial advisor; there are a lot of resources out there.
  • Use a down payment calculator to gauge how much you should put towards a down payment.

Get Assistance From Options When You’re Ready to Purchase Your Home

If you’re ready to make an offer on a home, we are here to help your dreams of home ownership come true. Options has a host of loan programs that can help you secure a home with down payments starting as low as 3%. So what are you waiting for? Reach out today!

For appropriate disclosures please visit apmortgage.com/disclosures
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