If you ask any person on the street why they haven’t purchased their first home yet, odds are that most of them will tell you that they haven’t saved up for a down payment. We hear this all the time at US Lending, and we’ve learned that most people have never looked into their options when it comes to down payments. Everyone has heard rumors of having to put 20% down, but they may not know that it’s not a hard and fast rule.
Recently, we sat down with Jim Westerberg and had a discussion about down payments. With his 26 years in the lending industry, he really knows a thing or two about the home buying process, especially down payments.
What is a down payment?
Pure and simple, a down payment is money, but it comes in many forms depending on what program you’re interested in. For example, if you’re a veteran, you have an option to do no down payment. USDA also has a no down payment option. Most people disqualify themselves because they think they don’t have enough in savings to pay a down payment for a home, but most people could qualify for a USDA loan.
Is a down payment always required?
No, not always, but the more you put down, the less your monthly payments will be. The bigger the down payment you have, you’ll have less monthly financial burden and you’ll end up saving money in the long run. If you want to do a conventional loan, then a down payment is required.
What are some of the benefits?
The more you put down, the less money you’ll pay on principal and interest. Again, this will save you a lot of money over time. A down payment also affects your mortgage insurance. If you don’t put 20% down, this insurance is a requirement. It’s based on a tiered system, so for every 5% down, you will have to get less mortgage insurance.
Yes, 20% down is a good number to shoot for, but if it’s not possible for you there are other options available, and starting the process sooner is always a good idea.
If you’re spending money on rent every month, you should consider meeting with a lender and discussing your options. Even if you don’t have money saved for a down payment, you can get access to grant programs or zero down payment programs, that will help you make a purchase on a home.
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