The importance of your down payment when buying a home

Due to the size of debt that most people take on when buying a home as well as the additional cost of having to maintain it, it is always a good idea to place the largest amount of down payment that you can possibly come up with.

One reason is because the larger the down payment the lower your monthly payment will be. Another reason why you will want to place the largest down payment you can is because it will allow you to afford a larger home at possibly the same size monthly payment, as you would pay at a lower down payment.

Despite your reason for putting down a cash down payment and depending on how you plain on financing the property your lender will still require that you have one, unless you’re talking about a VA Home Loan.

Most lenders down payment requirements will usually range from 0% to 20%.

VA Home Loans

One of the best things about Va’s home loan program (other than the no down payment requirement) it isn’t subjected to overall market conditions, which means that it will always be there for the veteran who needs it and is able to meet its qualifications.

FHA Home Loans

The Federal Housing Administration through HUD (Housing and Urban Development) in an effort to help the low to moderate-income home buyer insures home loans through its FHA Home Loan program. As a requirement for qualifying for one of its federally insured mortgages FHA requires that home buyers have at least 3% of the purchase price as a down payment.

Conventional Lender Mortgage Loans

In the case of conventional lender mortgage loan financing most lenders will require that buyers have 20% of the purchase price as a down payment.

Because of the fallout from the most recent mortgage market meltdown where many brokers and lenders were virtually giving out purchase money mortgages to anyone regardless of whether they could afford to make the payments or not they want to be certain this time you can afford to make those payments. However if you are unable to come up with the 20% you will have to pay PMI.

Private Mortgage Insurance

Private Mortgage Insurance (PMI) is usually required to insure any mortgage that is more than 80% LTV. Which means PMI isn’t charged to home buyers who have a 20% down payment.

Obviously your credit and income status are two of the largest determining factors when Qualifying For A Mortgage but you don’t want to overlook the importance of your down payment as well.