MYTH: You need to put 20% down to purchase home.
FACT: There are many options out there, you can qualify for a mortgage and get your new home without a 20% down payment
“There’s a lot of misconception out there about down payments,” says Steve Grossman, at NJ Lenders. “First-time homebuyers typically fall victim to this myth the most often. The fact is that there are a lot of loan programs that permit a borrower to get a mortgage without having a 20 percent down payment.” Steve continued to describe how knowing the available options can aid a buyer in the early steps of their home search process.
Let’s begin by defining what a down payment is and how it is viewed by lenders. Most lenders will want to see that you have something saved towards purchasing your home. The idea is that if you put your own money into the purchase, you have an incentive to make the mortgage payments because you want to protect your initial investment in the home. This is called a down payment, and it’s almost always calculated as a percent of the home purchase price. You make the down payment, and the lender provides the rest of the money to purchase the home.
Many lenders will offer borrowers a mortgage if they have at least 3-5% of the home purchase price. “There are four other key factors that play a big role in the approval process, those are: your credit score, the type of home being purchased, the stability of your income and the location of the home being purchased,” continued Steve Grossman. “The best way to truly evaluate your options is to speak directly with an experienced lender.”
First, determine as a borrower what you are financially comfortable spending on monthly payments. Next, establish a plan and start saving. Finally, connect with a loan officer who can help you find the best mortgage program to meet your budget, then go house hunting.
You control your down payment and it always works to your advantage, here’s why:
The larger the PERCENT of your home purchase price your down payment is, the LOWER your monthly mortgage payments will be.
Home Price: $200,000
Approximate monthly mortgage payment with 10% down = $925.35
Approximate monthly mortgage payment with 20% down = $859.35
Put differently, the higher your down payment saving is, the higher your home purchase budget could be, without changing your monthly mortgage payment. Check out the chart below to see an example:
A large down payment is not the single defining factor to secure lending for your new home. Bottom line, if you have a monthly payment in mind, have a good credit score and have already started saving, you may be closer to that new home than you might thought!