​How Much Down Payment is enough?

How Much Down Payment is enough?

Last week Brad Jagacki from Guaranteed Rate talked about Mortgage.

This week he will be talking about “down payment”.

If you want to find out how much money you need to put down as a down payment then you need to understand the concept of a percentages. The truth is that the down payment will vary depending on what property you are going to buy. It also depends on the loan that you have and your credit score as well, so these are all things that you need to keep in consideration when you work out your down payment. Take a look below to find out more.

Fixed Rates

Down payments are often calculated using fixed rates and minimum payment requirements. It also takes into account your credit score, so it is really important to know this. Of course, ARMS usually require a higher down payment and a higher credit rating, so let’s move on to how you can benefit yourself by understanding these concepts.

Your Property

You may be curious to know if there is a difference between the requirements for a down payment when the loan purpose is taken into consideration, whether it is an investment, a second home or a primary residence. The truth is that your down payment is all based on the amount of risk that is involved. Your lender wants to minimize their exposure and they do this by asking for a bigger down payment when there is more risk involved. This means that there is more risk for you, and less risk for them.

Type of Loan

If you want to take out a loan, you need to understand the differences between them.

FHA Loans: This is a loan that is given out by the government and it is ideal if you are a first time home buyer who wants a more forgiving guideline when it comes to the finance in general. FHA rates are often very competitive and they have low down payments as well.

Conventional Conforming Loans: These loans are backed by Fannie Mae and Freddie Mac. The lending guidelines are actually a bit stricter when they are compared to the FHA option above but either way, they remain to be a great option if you meet all of the requirements.

Jumbo Loans: If you were to take out a jumbo loan then you would most likely keep this loan, but you would service it as well. ARMS are a much more competitive option when compared to Jumbo loans and there are fixed rates available as well. The problem is that these will often be 0.5% higher than your traditional conforming loan.

Type of Property

The purpose of the loan will depend on how much at risk the bank is. In order to dispel some of this risk, the bank may ask you for a bigger down payment. Take the following example. If you’re purchasing a family home as your main rental income then you may think that the rent will pay for the loan. The problem is that the lender will be more concerned about the times when the property is vacant and how the mortgage will get paid in these types of situations.

Credit Scores

In most cases, the higher your credit score, the more options you have available and the better rates you can access as well. If you are planning on making a single family residence purchase then you need to make sure that you have a minimum credit score of 620 for a conventional, 600 for an FHA or 700 for a Jumbo.

Of course, this can change depending on your lender and they are only a rough guide, but it is certainly a number that you can keep in mind.

If you want to talk to him more about mortgage, contact him!

Brad Jagacki / brad.jagacki@guaranteedrate.com

(734) 368-9276 / NMLS ID: 31183

If you have any questions, please contact MKT Homes today!