Your Mortgage Down Payment Determines Your Mortgage
You finally found the house that you like and is within your budget.
Your offer has been accepted contingent on you getting the home
loan approved by your mortgage company. The size of your house
down payment relative to the value of your house will determine
the costs of your residential mortgage and whether you qualify
for a mortgage loan. In addition to the down payment mortgage,
you need to have funds available for closing costs to process
your home loan mortgage. Here are some points to consider.
How Much House Down Payment Is Required?
Most mortgage down-payments requirements these days vary anywhere
from 2% to 5%. On a wider spectrum, the range is 0% to 20%. It
is recommended that the mortgage downpayment be 20% or more of
the property value. There are several advantages in doing this.
Better Terms With The Mortgage Lender: Putting
up 20% or more demonstrates to the mortgage lender that you have
the ability to save. With a bigger home downpayment, it lowers
the mortgage banker’s risk that you will default. Mortgage
companies always want to do business with low risk clients.
You Won’t Have to Pay Private Mortgage Insurance
(PMI): If you put down less than 20%, you are required
to buy PMI private mortgage insurance which protects your mortgage
banker in case you default on your home loan. Private mortgage
insurance pmi is not a taxable expense and can cost anywhere from
$25 to $65 per month on a loan of $100,000. The cost is based
on the size of the mortgage down-payment, the type of home mortgage
loan and amount of insurance. The monthly PMI payment is paid
along with the mortgage. Under federal law, your mortgage banker
must inform you that your LTV (Loan To Value ratio) is amortized
to 78% of the original value of the house. You are no longer required
to pay PMI insurance. The borrower must be current on all mortgage
payments and the mortgage company must inform the borrower at
closing when the residential mortgage will hit that 78% mark.
Lower Monthly Mortgage Payments: A bigger house
down payment translates to smaller monthly payments on the home
loan mortgage. You will have greater financial flexibility.
Sources Of Funds For A Mortgage Downpayment
Now you have an idea how much you need for a home downpayment.
Besides putting money aside in a savings account, there are other
ways to get funds for your down payment home.
Federal Government Loan Programs: Federal Housing Administration
(FHA) and the Department of Veteran Affairs (VA) can offer help
in paying your initial payment for your house. These programs
can reduce significantly your downpayment requirements. Another
resource is your local Department of Housing and Urban Development
(HUD) Community Builders. Through them, you can find out what
local down payment assistance programs are available. A popular
FHA program permits 100% gift funds for your down-payment mortgage.
The gift can be from any relative or can be received through new
innovative programs, like the Bridal Registry where couples accept
money into an account that can be used for the down payment. Keep
in mind that this strategy does not apply to all loan programs.
State and Local Housing Authorities: State and
local agencies may offer down payment assistance programs in your
state. Whether you qualify or not will depend on your income level
and the number of dependents and children that you have.
Your 401K Program: Another popular method, which
is applicable to a wider range of the down payment assistance
program, is to borrow from your 401K program. If you have a 401K
program where you work, you can withdraw a percentage of it without
penalty for your house down payment and repay it over a specified
period. However, there some risks involved. Your 401K won’t
grow as fast since there is a smaller amount. When lenders calculate
your loan qualifications, they will add your 401K repayments in
calculating your monthly payments since you are required to pay
back in to the plan.