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How Much Is A Down Payment For A Home?

Aug 12, 2019

Are you thinking about buying a new home?

Though it will most likely represent the biggest purchase you ever make, the path to buying a house begins with a smaller initial sum: the down payment.

As you begin the buying process, start by figuring out how much you need for a down payment on your home. By figuring out this amount first, the rest of your journey will be a lot easier.

What Is a Down Payment?

Put simply, the down payment for a home is the amount you must provide the seller in order to initiate the sale. This agreed-upon sum isn’t enough to actually purchase the house. Instead, it’s enough to make the seller comfortable with turning over ownership.

The vast majority of the time, the down payment actually goes to a lender. Most people can’t afford to purchase a home in cash and seller-financing remains rare.

So, usually, a down payment is the amount you pay to a lender in exchange for the mortgage you need to buy the house from the owner. It’s calculated as a percentage of the total cost of the house. For example, if the lender wants 10% for a home that costs $200,000, you’d need to give them $20,000 as a down payment.

4 Factors to Consider When Making a Down Payment for Your Home

Don’t let yourself become overwhelmed by the prospect of saving up enough for the down payment for a home.

Yes, it might mean making some cuts to your current budget to set aside the necessary funds, but it’s much easier to get through this first step when you know the amount you have to save.

Here are the four most important factors to consider:

1. The Type of Mortgage You’ll Use

The kind of mortgage you’ll be applying for plays a big role in how much you have to save. While there are well over a dozen different types of mortgages, here are four common examples that help illustrate this point:

  • 30-Year Conventional Mortgage – This is the most popular type of mortgage. Private lenders generally want to see at least 5% for a down-payment before they’ll provide a mortgage, but some may even offer only 3% down.
  • FHA Mortgage Mortgages from the Federal Housing Administration are also very popular. One reason is that they only require a 3.5% down payment. However, you’ll need to match the FHA’s requirements for buyers before you’ll be considered.
  • VA Loan – The United States Department of Veterans Affairs (VA) provides mortgages to active military members and veterans. As long as you meet this qualification, you should have no problem securing a mortgage without a down payment.
  • USDA Loans – Similarly, the U.S. Department of Agriculture (USDA) doesn’t require a down payment for its mortgages, but they only offer them to buyers in specific rural areas. Other restrictions apply to USDA mortgages, as well.

If you decide to go with a private lender, reach out to them early to find out how much they require for a down payment and any other factors that might apply. While many will accept 5%, some experts recommend as much as a 20% down payment.

2. How Much You Can Afford to Pay for the Down Payment at Closing

There’s only so much you can afford to put down for a down payment on your house. This probably seems obvious, but many buyers never get focused on a firm number. Instead, they try to “save as much as possible” to give themselves plenty of options.

The fatal flaw with that goal is that “as much as possible” isn’t a concrete target. One month you might set aside $1,000. Another, you might barely save $100.

Review what you’re currently spending every month and then look for opportunities to cut back.

Next, look at how much you’re already saving every month and decide how much of that could go toward your down-payment fund instead.

Once you get through this simple exercise, you’ll have a much better idea of what you can realistically afford to put down for a home.

3. The Monthly Payment You Can Afford

While this factor is similar to the last one, there’s a big difference.

Most homeowners – especially first-time homeowners – will tell you all about how hard they worked to save up enough for an impressive down payment. They may have sacrificed some of their favorite luxury items or activities for months to set aside enough.

Doing that for a down payment on a home is one thing. Doing it month-after-month for 20-30 years is another.

Look at your monthly income and get clear about what kind of ongoing payment you can comfortably afford. This will show you what kind of down payment you’ll need in order to make those payments tolerable.

4. How Long You Have to Save for Your Down Payment

Someone who has six months to secure a mortgage is in a very different situation compared to someone who has an entire year.

If you have a set date by which you absolutely must buy a home, then it’s just a question of considering the other three factors and making a schedule to save every month.

Some people don’t have a hard-and-fast date, though. Maybe your current living situation is fine, but you’ve begun thinking about buying a home. In that case, the longer you can give yourself to save, the better.

Again, review the four factors above, and then decide on the type of home you want to live in and where you’d like it to be. You can do some preliminary house-hunting online to get a better idea of what your budget will need to be and that will tell you how much to set aside for your down payment.

Start Saving for Your Down Payment Right Away

The sooner you consider the four factors we outlined above, the sooner you’ll be able to start saving for your down payment. As you now know, the longer you give yourself, the better.

And here’s one more way to save money for that all-important down payment: sign up for the SimpleShowing Buyer Refund Program. With this program, you'll get an average $5,000 towards closing costs which will help offset the amount of money you have to provide at closing. You'll work with a full service agent who will be there to help you from your first tour all the way through closing. Plus, you'll get a big refund when you close. It's the most affordable way to buy.

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