The time has come. You’ve got a stable job, a growing nest egg and the home of your dreams just went on the market.
“It’s time to pull the trigger,” you say. But before receiving the keys to your castle, you’ll have to make big decisions — how much of a down payment should you put on the house, and which mortgage is right for the home? Down payment requirements vary depending on the type of loan, and how much you put down now will determine your payments into the foreseeable future.
The following mortgage options are available to those seeking to buy a home:
Conventional mortgage loans
Can be 10, 15, 20 and 30 year fixed or adjustable rate mortgages
- Conventional / Insured loans are available with as little as 5% down payment
- Conventional loans are available with as little as 20% down payment
FHA / VA loans
Can be 15 or 30 year fixed rate mortgages
- VA (Veterans Affairs) loans are available to eligible veterans. No down payment is required
- FHA (Federal Housing Administration) loans are available to all borrowers regardless of income with as little as 3.5% down payment
USDA loans
30-year fixed rates
- USDA (Department of Agriculture) loans are available to restricted income applicants without a down payment
There is a best option for choosing a mortgage. However each applicant’s circumstances vary, so ‘the what’ is best for one may not be best for all. That is where a trusted advisor can help an applicant. Read about what makes a good mortgage advisor here (link). Generally speaking, the greater one’s down payment (or equity) is, the lower the rate and fees associated with a transaction.
Don’t drop your entire nest egg on a mortgage. Spend within your means. Many people spend their entire life savings to secure a larger mortgage, but this leaves room for problems if unforeseen payments arise.
Also keep in mind that if you pay less than 20 percent up front on your down payment, you will be required to pay private mortgage insurance (PMI), which is in place to protect the lender if you default on the loan. Insurance fees can usually be stopped after you have 20% equity in the home.
Want to test down payment figures? Check out Horizon Bank’s Mortgage Loan calculator and see how much your money down will affect your monthly payments.
Written by: Dan Thomas is the Senior Vice President of Horizon Bank’s Home Mortgage Division. He has over 35 years of mortgage banking and lending experience. Comments or questions may be directed to him at dthomas@accesshorizon.com