Setting out to buy a home is an exciting time in your life, but you may have a lot of questions about the process. Even if a down payments seems out-of-reach, there are loan options for all kinds of circumstances! If you’re unsure what a down payment is, how much you will need, and what options you have, don’t worry! We’re here to answer your questions and help you succeed in buying a new home.
What is a Down Payment?
A down payment is the up-front cash payment that you make in order to get a loan on a home. It’s deducted from the total amount of your mortgage and represents the initial equity (your ownership stake) in your home.
How Much is A Down Payment and What Are my Options?
While you may have heard that you need a 20% down payment, the truth is that down payments vary based on what loan type you qualify for.
- Conventional – Traditionally, the golden standard for this loan has been 20% of the home price. However, conventional loans require as little as 3% down. Keep in mind private mortgage insurance (PMI) is required any time you put less than 20% down on a conventional loan.1
- PMI is risk-based insurance that protects a lender in the event that you default on your payments and the home goes into a foreclosure. PMI may cost between .5% and 1% of the mortgage loan amount.2
- FHA – In 2020, Tampa’s FHA loan limit is $331,760. With this loan option, the Federal Housing Administration insures the loan, so your lender is able to offer you a better deal. This means your down payment can be as low as 3.5% of the home price.
- VA – If you’re an active duty or retired service member, you may qualify for a VA loan. This program offers perks like zero down payment for qualified borrowers and an absence of PMI.
- USDA – This is only available in certain rural and suburban areas and doesn’t require a down payment. To find out if your future home is eligible for a USDA loan, reach out to your loan officer for more information.
Benefits of a Large Down Payment
A better mortgage interest rate, lower up-front fees, lower ongoing fees, and more off-the-bat home equity are just a few of the benefits that make a large down payment worth it. When you put down a larger down payment, you become less of a risk to the lender, so you’re more likely to get approved for a mortgage loan.
No matter what your circumstances, make sure you ask your lender for the different payment options available when shopping for a home mortgage.
Now that you’ve got an understanding of what a down payment is and how much you should expect to pay, the only thing you’ve got left to do is start saving! Ask about your mortgage options, set up your budget, and hang on tight: homebuying is an exciting ride, and you’ll be thankful you went along with it.
If you have any questions about the homebuying process, check out Lennar’s innovative Make Your Move Program. Make Your Move is a quarterly workshop series that helps educate young professionals on every step of the homebuying process. RSVP for the next workshop today!