When looking for a new home, particularly their first, many people are naturally concerned about the down payment. This number, which stands for the amount of cash you put down up front when buying a home, can be intimidating for many homebuyers looking to set their families up for the next several decades.
At Altius Mortgage and our partners at Mortgage Ogden, we’re here to help with this concern. Our mortgage brokers will help walk you through the various options you have for a down payment when it comes to a mortgage loan, and help you make the right decision. Here are some basics to know about the down payment.
In most traditional loan situations, lenders are looking for 20 percent in a down payment. If your home costs $400,000, they’ll be looking for an $80,000 down payment. Having this amount available for a given home will increase your chances of loan approval, and will also likely earn you a better mortgage interest rate. It will also likely lower your upfront and ongoing fees, get you more equity in the home right away and start you off with a lower monthly payment.
Remember, though, that there are other big payments up front, such as closing costs and earnest money. Because all these combined can be an issue for some people, let’s look at a few of the options out there for a lower down payment.
The Federal Housing Administration (FHA) helps home buyers, particularly those buying for the first time, get approved for much lower down payments, often as low as 3 percent. The FHA guarantees portions of the loan, allowing lenders to accept a much lower down payment. Fannie Mae and Freddie Mac, the two government-sponsored companies that drive the credit market, also offer 3 percent down payments for some loans. In addition, if you’re an active or retired service member or live in a rural area, you might have access to other special programs with low or no down payments.
Fees and Insurance
One of the caveats of these lower programs: You may pay in other areas for the guarantee the government is giving you. There will be an upfront fee, and you may have to pay private mortgage insurance. This won’t always be the case, but be sure to check in advance. You may also pay a higher interest rate for the life of the loan due to higher risk for the lender.
It’s always tempting to go for lower upfront costs, but the key to building long term net worth is buying smart. Lenders have to disclose all fees, so check these over carefully in advance and explore your options.
For more information on down payments, or to speak to our mortgage brokers about any of our other services, contact the pros at Altius Mortgage today.