Down payments are a big part of purchasing a home with a mortgage Your minimum down payment depends on the type of mortgage, the lender and your finances.
When borrowing money from a lender to purchase a home, the more cash you put down, the better your financing terms will be. It is important to understand what a down payment is and how much cash you need to have. A down payment is the cash that is put down on a large purchase such as a car or a home. The amount of the down payment is usually a percentage of the total amount of the cost. A $350,000 home with a down payment of 10% would be $35,000.
Different lenders and different loans will require a different percentage of the whole cost for the down payment. If you are obtaining a VA loan or a USDA loan you are not required to make a down payment because these are backed by the federal government. The magic number in most cases, when it comes to a down payment, is 20%. With most lenders, 20% down on the purchase of a home will give you a good mortgage rate and allow you to bypass mortgage insurance. An FHA loan that is backed by the FDA, requires a minimum of 3.5% of the purchase price. Many conventional loans (Fannie Mae HomeReady and Freddie Mac Home Possible) mortgages require as little as 3% down.
Remember, a larger down payment will get you a better mortgage interest rate, lower upfront and ongoing fees, more equity in your home from the start and a lower mortgage payment. Lenders like a larger down payment because the risk becomes lower for them. A professional lender can help you through this process. They can help you determine how much to put down and how it affects your monthly mortgage amount.
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