Home Buying Preparations – Down Payment

by

blog-author-clayjeffreys3

Wrapping up a blog post series to help you keep the new year’s resolution to purchase a new home in 2016. In the first post, we talked about how important it is to know “how” you are paid (in addition to “how much”). Next, we dispelled the rumor that a low credit score means a bad interest rate. That isn’t necessarily true. Today, we’ll finish up with the down payment.

I have written countless posts about how much of a down payment is needed to buy a home. Can you guess how much? If you’ve read this blog in the past, you know that the answer isn’t 20% down. Just like the credit score requirements differs depending on the loan program, so does the down payment requirements. In order to buy a home, you’ll need:

  • 5% down for a conventional loan (3% is also possible if a borrower qualifies)
  • 3.5% for an FHA loan
  • No down payment on a VA loan

When making less than a 20% down payment, there will be PMI (Private Mortgage Insurance) on the loan unless it is a VA loan. There are some differences in mortgage insurance between conventional and FHA loans. Here are some quick notes on them.

  • FHA loans have an up front mortgage insurance premium. The monthly PMI is required regardless of the down payment (even if you put 20% or more down). If making the minimum down payment, FHA mortgage insurance is permanent. The monthly amount is set on a factor of 0.85% of the loan amount regardless of the amount down or the borrower’s credit score. For more information on FHA mortgage insurance, check out this previous post from the Mortgage Blog.
  • Conventional loan mortgage insurance is determined by the amount of the down payment and the credit score. Conventional loans have a sliding scale on the factor determining the monthly PMI. The more down AND the higher the credit score, the lower the factor goes (and vice versa). The mortgage insurance isn’t permanent, and there is no up front premium. For more information on conventional loan mortgage insurance, check out this video post.
  • Conventional loans also have a Lender Paid Mortgage Insurance (LPMI) program. Using this loan, a borrower agrees to a higher interest rate in exchange for no monthly mortgage insurance payment. For more details on this program, read this post from 2015.

If you take nothing else away from this post, please remember that regardless of what you hear on the news OR read on the web, you do not need 20% down to buy a home. I promise! If you are looking to buy a home in the state of Georgia, I can prequalify you today for a home purchase without needing 20% down.

footer_clayjeffreys4

Advertisements

Tags: , , , , , , , , ,

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s


%d bloggers like this: