Down Payment Archives - Desert Premier Realty Group

Down Payment

Are you looking to buy a home and wondering what you will need for a down payment?

What is a down payment?

A down payment is the money that you, the home buyer will contribute, from your own funds, towards the purchase of your future home.

If you intend to finance your home, also known as obtaining a mortgage, your lender considers this down payment as your “skin in the game,” or the gauge of your seriousness and willingness to repay your loan.

If you don’t repay your mortgage, you lose your home and all of the money that you put into it, including your down payment.

The more money you put down on the home, the more acceptable of a risk you are to your mortgage lender. With that line of thinking, usually comes lower monthly payments.

Down payment amounts can vary and it really depends on the type of loan that you are getting. There are several different loans that are available to the average home buyer, including Conventional, FHA, USDA and VA.

Conventional Loans

Typical down payment amount: 5%-20% of the purchase price.

Example of down payment needed: if the purchase price of your home is $200,000 and your down payment is 20%, then the amount that you will need is $40,000. $200,000 x 20% = $40,000.

Conventional loans are typically loans that are available to home buyers with good (or better) credit and have the potential of carrying a lower interest rate and no mortgage insurance.

FHA Loans

Typical down payment amount: 3.5% of the purchase price.

Example of down payment needed: if the purchase price of your home is $200,000 and your down payment is 3.5%, then the amount that you will need is $7,000. $200,000 x 3.5% = $7,000.

FHA loans are very popular with first time home buyers, as credit standards are a bit more relaxed than conventional loans. Along with lower credit standards, the down payment amount can be as little as .5% of the purchase price. FHA loans do tend to have higher interest rates than conventional loans and also carry mortgage insurance.

USDA Loans

Typical down payment amount: Zero down

USDA loans are zero down payment loans that are slated for rural housing in select areas. This is a great opportunity for first time home buyers, with less than perfect credit that wish to live in rural areas.

VA Loans

Typical down payment amount: Zero Down

VA loans are for our US Veterans. This is an excellent zero down program that can be used typically in any area.

Knowing how much your down payment will need to be is critical to your planning process when buying a home. We hope this article has shed some light on your questions.

Do you have more questions? Feel free to comment in the box below!

Buy your home for darn near zero down.

The new .5% FHA down payment program has recently been rolled out to home buyers by many lenders. It is a spin off of the well known 3.5% FHA down payment program that has been effectively used for many years.

The old 3.5% FHA down payment program:

A home buyer can purchase a home with only 3.5% of the purchase price as a down payment – With a $200,000 purchase price as a buyer, you can come in with as little as $7,000 ($200,000 x 3.5%) for a down payment.

With the new .5% FHA down payment program:

A home buyer will only need to come to the closing table with .5% of the purchase price – With the same $200,000 purchase price, you come in with as little as $1,000 ($200,000 x .5%) for a down payment.

What happens to the other 3% with this new loan program?

Unfortunately, the 3% doesn’t just disappear!

3% of your down payment is financed into a 2nd mortgage.

The 2nd mortgage:

The 2nd mortgage is up to 3% of the purchase price.
The mortgage is a fully amortized loan over 15 years.
The interest rate on the 2nd mortgage is 8.25%.

The 1st mortgage details:

The maximum loan amount for the 1st mortgage is 96.5% of the purchase price.
Typically the mortgage is a fixed rate amortized over 30 years.

Who is eligible for the .5% FHA down payment program?

There are terms and restrictions to the program and here are some details:

Owner occupied purchases only.
You must have a minimum FICO score of 600.
$71,185 income limitation for Maricopa and Pinal Counties.
This program is not limited to first time home buyers.
A HUD approved home buyer education required.

Wait! There’s more…

There’s even more that a home buyer can do to get into their new home for as low out of pocket as possible. Just like the 3.5% down payment program, you can receive gift funds from family to cover any closing or down payment costs you still might have. In addition to that, as a buyer, you can negotiate with the seller of your new home to contribute up to 6% of the purchase price to your closing costs and down payment.

You can receive up to a maximum of 6% of the purchase price – $200,000 purchase price x 6% seller contribution = $12,000.

Buy your home for close to zero down.

When you take a look at all of the different options at your disposal to save, it’s very easy to see that you can purchase a home with with very little in out of pocket costs.

Now go out there and find your home!

What Will I Need For A Down Payment When I Buy A Home?