If you’re a first time home buyer, you’re bound to have a lot of questions about down payments. How much will you need and what’s the right percentage to put down? And what else do you need to know? We’ll walk you through the steps to best determining your ideal down payment.
Determining Your Down Payment
You might have heard that a good down payment is 5% to 20% of the mortgage itself. In general, this is a good range to keep in mind. So, if your mortgage is $300,000, you would be putting down a minimum of $15,000 or a maximum of $60,000. However, these figures might sound a little steep and overwhelming to a lot of new homebuyers.
Luckily, this isn’t a hard rule. The truth is, the minimal amount of money you often need to buy a home is often only 3.5% of your mortgage, which is much easier to aim for than 5%+ To figure out exactly what you’ll need (including closing costs), work closely with your mortgage company to figure out from the start what you can afford and what you should expect to pay out of pocket.
What Else to Consider
If you’re pretty set on putting down 5% or 10% of the mortgage, you might want to consider finding a lower priced home. This way you can put down more money, cover a greater percent of the down payment, and lower your monthly mortgage payments. But what if you can afford your mortgage payments without any issue and simply don’t have enough to meet the expected down payment?
Perhaps you don’t have $5,000 or more saved up to put a hefty down payment on your home, or maybe you do and don’t want to give up that much money. While your monthly payments will then be higher, putting down a smaller down payment isn’t always a bad choice to make. If you have minimum monthly debt (car payments, students loans, etc), then this option might be right for you.
Ways to Acquire a Down Payment
If you have any investments like stocks, IRAs, or 401k contributions that you can take advantage of, it might be best for you to do so, in order to put more money down on your home. Of course, there are always risks involved (particularly when pulling money out of a 401k), so you’ll need to talk to your financial representative to figure out which option is better for you.
If you have any questions about your down payment options, be sure to talk to your mortgage company first, so you’ll know exactly what’s expected of you.