A Home Buyer's Guide to the Down Payment

Posted by Ted Guarnero admin on Wednesday, September 6th, 2017 at 9:51am.

What to Know About a Home Down PaymentAre you a first time home buyer? You should know that there are ways to put less down on the purchase of a home, leaving more money in your bank account. However, what are a few things you need to know about a down payment before ever looking at available properties?

Homeowners can get a head start on the home buying process by calculating how much house they can reasonably afford and home much money they will need to put down as a down payment. Understand more about the down payment, traditional expectations from lenders, special programs and more in this home buyer's guide.

What to Know About the Down Payment

Lenders want to make sure you are invested in the property. Therefore, they desire a significant down payment on the purchase of a home. This makes it more likely that a homeowner will keep the property in good shape and make timely monthly payment. Even though there are traditional expectations about the amount to put down on a home, there are homeowners that were able to put nothing down on the purchase of a Museum Campus home. Such situations are generally through specialized programs with their own restrictions and regulations. It is important to read through and understand all of the details necessary before taking out a mortgage or working through other lenders or programs.

The 20 Percent Rule

20 percent is the traditional down payment lenders require. However, home buyers can still purchase a home with less than 20 percent down. There are particular programs that may allow for smaller down payments. Programs include the Federal Housing Administration (FHA), The U.S. Department of Agriculture (USDA) and The Department of Veterans Affairs (VA). Mortgage loans are available for homeowners looking to put down less than 20 percent and some require no down payment. Be aware that for those individuals looking to work with a traditional lender but make a lower down payment, it may be necessary to pay for Private Mortgage Insurance (PMI).

You may not be able to afford to put down 20 percent. This is typical for many first time homebuyers. You may also want to have more cash on hand for future expenses. This may make it easier to attend to unexpected home repairs. It is comforting to know that there are programs available and ways to get a home on less than 20 percent down.

The Bottom Line

Home buyers should know that putting down less than 20 percent may be an expensive option over the lifetime of a mortgage loan. First of all, the mortgage itself will be larger, the payments may be higher and take longer to pay off. The homeowner will have less equity invested in a home. An unforeseen sale of a home will provide a home seller with much less money back, as one can only expect back what they put in. Sometimes, the amount is not enough to pay for out-of-pocket fees and closing costs.

Even those that are not required to put money down on the purchase of a home still have to pay for closing costs. Budget 2 to 7 percent of the home price to cover this necessary obligation.

Buying a home will likely be one of the largest and most expensive purchases you will ever make. Carefully consider what you can afford and examine all of the programs available to make it easier for you to purchase a home and close a mortgage.

Ted Guarnero, REALTOR® is a full-time real estate agent with over 1000 homes sold and $400 million in sales.  Working with Compass real estate offering professional and effective real estate services to help you succeed in the local real estate market. Visit www.seeChicagorealestate.com for information on downtown Chicago real estate and to get in touch with an expert in the Chicago real estate market. Before you hire your next Realtor call Ted Guarnero 855-See-Chicago, it's on the House !


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