ASK OUR EXPERTS 973.574.1144

Down Payment options

Every buyer’s focus is finding the right home and securing that property for their ideal price. One of the major components of the purchase is the down payment amount. Fortunately, buyers have several options when considering their down payment and loan choices.

The most well-known option is the 20% down payment. As this is the industry standard, a 20% down payment will provide a better rate and no PMI.

What is PMI?  Private Mortgage Insurance is an additional expense paid by the buyer when the down payment is less than 20%.  PMI can be paid monthly or covered by the lender with an increased interest rate.  PMI will be discontinued when you have built enough equity (78%) in your home.

Another low down payment option is through the Federal Housing Administration (FHA), which offers a minimum of 3.5% down payment. It is important to note that this type of loan includes a mortgage insurance premium due at the time of closing as well as an additional monthly premium. This loan is often chosen by clients that don’t have a significant amount of savings or high credit scores.  Borrowers need to consider that this option will include the additional insurance and remember to factor that into their monthly budget.

Where can a down payment come from?

The most obvious source of a down payment is the buyer’s savings. This can include any and all of their liquid assets – checking, savings and mutual funds accounts are the most typical. Another option is a gift from a family member or close friend.

There are more and more opportunities for home ownership through a variety of funding sources. Each borrower benefits from the guidance and knowledge that their loan officer provides in structuring their loan. The down payment amount is a significant factor, as it will directly affect which product(s) will be suited for the home purchase. The most important factor to keep in mind is that very borrower needs to utilize the down payment that works for them presently as well as in the future.