The mortgage down payment is the amount of money the borrower must put down to secure the home loan. It shows that you as a buyer are serious by putting in a little equity toward the new home. It is an essential part of the home loan process and unfortunately, many first time home buyers forget to save for this. They can afford the monthly payments of owning a home but have nothing to put down as a sign of good faith. Putting down a significant mortgage down payment can save you a lot of money in the long term. It also gives you instant equity in your new home. The beauty of a down payment is you are investing in your new home and you will get that money back or more 9 times out 10. It’s not like a down payment on a new car were you drive it off the lot and you have already lost money.
How Much do I Need for a Down Payment?
The answer to this question has changed over the last few years and the answer is it depends. I know this was not the answer you were looking for but it really does depend on the loan program. As a general rule, the answer would be 3.5% – 20% of the purchase price of the home, again depending on the loan. Now that being said there are loan programs were in some cases you don’t need any money down. For example the VA loan and some USDA loans programs. Keep in mind a person would still need to come up with the money for closing costs which on average are about 3% of the purchase price of the home. Another good program is the FHA loan which only requires a 3.5% down payment of the purchase price. This is a great program for the first time home buyer. Now that being said any down payment less than 20% of the purchase price requires private mortgage insurance. The more money a person can put down the better the mortgage terms are going to be. It is never to early to start saving for a down payment for your first home. Purchasing a home is an investment so any money you save to put on a down payment is similar to a savings program that grows over the years.