How much down
payment do I need to put down?
The answer to this
question is: "It depends". These days however, you can start at zero
and go to whatever money you can afford to put down.
Zero-down loans are relatively new but are gaining popularity as
lending institutions become more comfortable with them. One of the
reasons lending institutions are getting more comfortable is that
most people do not default on their loans and lending institutions
understand this. Nowadays, many advertised homes have no money or
very little money down. These can prove to be an excellent way to go
but you should carefully examine the details of these offers. In
most cases, however, you will need to put some money down. The
lender feels that the more money you put down for the home the more
likely you are not to default on the loan because you have equity in
the home.
It is recommended to put down about 20 % or more of the cost if you
have that amount of money available. This is known as 80% Loan To
Value ratio (LTV). If you put down less than this you will be
required to pay Private Mortgage Insurance (PMI) which protects the
lender in the event you default on the loan. PMI is not tax
deductible and can cost anywhere from $25 to $65 per month for a
$100,000 loan. It's determined by the size of the down payment, the
type of mortgage and amount of insurance. Monthly PMI is paid with
the mortgage. Remember that under the federal law the lender is
required to cancel the PMI once the LTV ratio reaches 78% or, in
other words, when your mortgage amortized to 78% of the original
value of the house. The borrower must be current on all mortgage
payments and the lender must tell the borrower at closing when the
mortgage will hit that 78% mark.
Some
mortgage lenders may require this 20 % to be put down in order
to get a loan. You can be turned down for a loan if you are not able
to come up with the 20 % the lender requires. In some areas of the
country such as the Northern Virginia area and the Metro Richmond
area, where homes for even the first time buyer are every expensive,
20% can be a large amount of money. Starter homes in these areas can
cost $250,000 or more.
For Federal Housing Authority,
FHA loans, you may only need to put down as little as 3% of
which 2% can be a gift from a friend, relative or Nonprofit
organization. However, you will need to
pay PMI on FHA loans.
A new development is that nontraditional lenders are jumping into
the mortgage game. Many of these are investment companies such as
Fidelity. They allow you to borrow on a margin, which basically
means you are essentially using your brokerage account as collateral
for whatever you are buying. Your brokerage account may be your
retirement account or investment assets you don't wish to sell in
order to come up with down payment cash. If you accounts are with
other financial institutions, investigate if they offer this option.
JOHN R. EMERY
REALTY, INC.
2111 Easy Jet St, Meridian ID 83642
Homes for sale 