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As your home loan application is being preapproved, you may be wondering “How much will my down payment be?” If you think you have to have 20% saved up for a down payment before even thinking about buying a home, think again.
Your down payment can span from 0% to 20% or more, depending on a wide variety of factors. These factors can include:
What kind of loan you apply for can affect the down payment you’ll be expected to come up with. Your Loan Officer (LO) should lay out all of your options for you and let you make the decision based on your financial circumstances.
A conforming loan is one that is offered by a bank or other financial institution that is sold to either Fannie Mae or Freddie Mac. The majority of loans currently fall under this category. Down payment options range from 3%-20% down or more. If you put less than 20% down you will be required to pay PMI (Private Mortgage Insurance). The cost of PMI will vary depending on your credit score and will typically be less expensive than the premiums for FHA financing.
There are ways to remove PMI when you have enough equity or have paid down your loan past a certain point. You can see when PMI is required to be removed here.
An FHA loan is backed by the Federal Housing Authority, and allows homebuyers to buy a house without such a large down payment. An FHA loan can get you into a home of your own with 3.5% down if you meet certain credit score minimums. The mortgage insurance on a FHA loan is required regardless of the size of the down payment and is permanent and cannot ever be removed. FHA loans are usually ideal for borrowers that don’t qualify for a conforming loan due to credit or other factors.
A VA loan helps military veterans, active military members, or spouses buy a home with as low as 0% down. You’ll need a Certificate of Eligibility (CoE) to get a VA loan. Your Loan Officer can help you get this. An advantage of a VA loan is that no PMI is required. You will have to pay a funding fee, but it can be rolled into your loan. The funding fee will vary depending on whether it’s your first time getting a VA loan, how much you’re putting down and can even be eliminated if you receive VA Disability.
Your credit can also affect how much of a down payment you’ll need. If you have great credit, your lender may be willing to accept a lower down payment. If you have bad credit, you may still be able to finance a home by putting down a larger payment.
Your debt-to-income ratio, or DTI, can also affect your down payment. If your monthly bills account for close to half or more of your monthly income, you may want to put up a larger down payment to ease your lender’s mind about your ability to make your mortgage payments.
Finally, even if your lender doesn’t insist on a high down payment, you may want to make one in order to have a shorter loan term or lower monthly payments for the term of your loan. You may wish to have more available money in your monthly budget with a low house payment, or to pay off your home over ten years instead of twenty.
Your LO can discuss all of your options with you, and you can also consult with a financial professional to determine if tying up your money in your home is a good plan. Then they can complete the preapproval process based on the down payment that is best for you.
We’ve fine-tuned the preapproval process to make it one of the easiest experiences you’ll have in the whole home buying process. Buying a home should be fun and exciting, not stressful. Get preapproved today!
Sammamish Mortgage has been in business since 1992, and has assisted many home buyers in the Pacific Northwest. If you are looking for mortgage financing in Washington State, we can help. Sammamish Mortgage offers mortgage programs in Colorado, Idaho, Oregon and Washington.
Contact us if you have any mortgage-related questions or concerns. If you are ready to move forward, you can view rates, obtain a customized instant rate quote, or apply instantly directly from our website.
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No Obligation and transparency 24/7. Instantly compare live rates and costs from our network of lenders across the country. Real-time accurate rates and closing costs for a variety of loan programs custom to your specific situation.