When looking forward to owning a home, you would be required to pay down payment. However, not all would be aware about down payment. Let us delve on it.
Understanding down payment
Down payment would be best described as a specific portion of the buying price paid by the buyer using his or her own funds. Find below 10% down payment structure for purchasing a home.
A $100,000 purchase price of the home having $90,000 mortgage would require the homebuyer to pay $10,000 as down payment amount.
Several loan programs would enable the homebuyer to make use of a relatively small amount of down payment or no DP at all. You should be rest assured that 20% down payment is a myth. It would not be wrong to suggest that down payments have been optional.
Is it beneficial to use low down payment mortgage?
Your choice of loan would be dependent on whether you look forward to making down payment or not.
Benefits of making down payment include:
- Avoiding mortgage insurance
- Carrying lower loan balance
- Wide number of options to choose from
Drawbacks associated with making down payment would include:
- Exhausting your cash for emergencies
- Unable to receive better mortgage rates despite making huge down payment
- Being huge risk to you financially
Your down payment making needs would be dependent on several aspects. It would be inclusive of your savings and your long-term plans.
Searching for low down payment lenders
Almost every lender that you come across would be offering you with low down payment loans. However, it would be the national programs and not the regional ones. Several mortgage companies, banks, mortgage brokers and credit unions would be offering similar programs.
Therefore, it would be in your best interest to shop comprehensively for best rates available. You should be rest assured there is no dearth of lenders who would be competing for your business.
The question how much could you afford should not be left to be determined by the lender. It should be handled personally. However, you could seek the best available financial advice.
You would be required to consider your monthly budget and determine how much you could afford to pay for your home every month comfortably. Henceforth, using a desired payment as initial point, make use of mortgage calculator to work backwards to look for maximum home buying price quote. You should be using current mortgage rates, especially when doing the mathematics. Change in mortgage rates would also change your home affordability.