There are several important parts of a given mortgage situation, and for many people, the down payment is chief among these. As the largest chunk of cash you’ll be asked to put down at once during the mortgage process, many buyers naturally worry about having the proper down payment amount.
At Altius Mortgage and our partners at Mortgage Ogden, we’re here to help. Our loan center contains numerous options for buyers, from experienced real estate flippers to first-timers. If you’re worried about the down payment, let’s look at some basics and averages that might set your mind at ease.
Down Payment Basics
To understand a down payment, you have to consider what’s actually happening in a mortgage loan situation: Your lender is giving you money, taking a small risk that you’ll repay it properly over the agreed upon period – with the benefit of interest to make up for this small risk. But in many cases, that’s not quite enough of a carrot; this is where the down payment comes in.
The down payment is not considered part of financing. Rather, it gets you immediate equity in the home you’re buying – you immediately “own” that percentage of the home. This kind of investment helps protect lenders and sellers alike.
Down Payment Averages
Many buyers, particularly first-time buyers, have hear a few myths when it comes to down payments. The biggest one? That you absolutely can’t get a mortgage without 20 percent of the purchase price placed down in cash.
This couldn’t be further from the truth. There are programs out there with extremely low down payment requirements, and even some with no such requirement at all. Per the National Association of realtors, median down payments for first-time buyers over the last several years has only been about 6 percent. Averages in most locations tend to range between 5 and 10 percent.
Calculating Down Payments
Calculating what amount you might need for a down payment is extremely simple with a basic calculator or even some napkin math. You simply take the purchase price of the home, then multiply it by whatever percentage you’re looking at putting down to see what the amount you’ll need would be. You can also reverse this and figure out what kind of percentage your budget allows you to put down on homes within a given price range.