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July
25

Down Payment Amounts - Buy a Home - Haring Realty

When looking for Mansfield or Ashland homes for sale, many buyers feel intimidated by the idea of the down payment. As in other kinds of loans, the down payment is the cash amount you'll "put down" to secure the transaction and get the financing you need.

Our REALTORS® know this is a potentially confusing issue. Advice about down payments has changed in recent years. Whenever the housing market takes a big swing, it's important to double-check all of your assumptions. A qualified real estate agent is the best person to ask.

Let's take a closer look at the current situation around down payments.

How Much Is a Traditional Down Payment on a House?

The conventional wisdom held for many years was "the higher, the better."

It was not unusual to be advised to pay anywhere from 15 to 20% for the down payment.

In the long run, a higher down payment can be a better bet for both the seller and the buyer. A buyer who can afford a higher down payment will not have to finance as much money. Even shaving just a few thousand dollars off your financing package can be big savings in the long run.

The biggest problem with the down payment is that it can be difficult to finance.

Not all mortgage loans include support for the down payment. Outside of certain first-time homebuyer programs, you may be unable to finance the down payment or use gift money to pay it. This can add months to your buying timeline.

The benefits of paying the full 20% include:

  • No pricey extra mortgage insurance (which protects the lender—not you)
  • Reduced monthly payments because your loan principal is lower overall
  • More attractive to sellers, who prefer the most financially stable buyers

How Much Do You Need for a Down Payment in 2022?

Of course, 20% is not the minimum down payment. A mortgage lender establishes the minimum amount. The minimum for a conventional bank loan usually falls between 3% and 5%. Each institution has its own rules, which will be spelled out clearly in any loan agreement.

One of the best things you can do as a buyer is to compare loan packages from many lenders. You can do this easily by getting pre-approved for a loan. Pre-approval means the lender has reviewed all of your finances and come to a determination about the amount you would be approved for.

Pre-approval does not mean you are required to accept that loan package or go forward with a buy. It is also different from pre-qualification, where the lender only provides an estimate based on a generalized overview of your finances. Pre-approval takes longer, so it is a good idea to do it as soon as possible.

Can You Buy a Home Without a Down Payment?

Yes. Buying a home without a down payment is often possible, especially if you're using a government-backed first-time homebuyer program. The government does not issue loans in these programs; instead, it establishes rules that lenders must follow. These rules make homebuying more accessible.

With a zero down payment, you may be able to act faster and put in a bid on the home you want. Some of these programs also offer below-market interest rates, so you'll pay less interest on the mortgage as time goes on. But you'll also need to factor in a higher total financing amount.

Contact us to find out more or get personalized advice for your situation.

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