It’s a good idea to get familiar with some of the home financing lingo that you’re going to come across in your upcoming Jacksonville home search. One of the terms that you’ve likely heard before is that you’ll need a “down payment,” but you may not be familiar with what that entails.
In addition to a new mortgage and insurance payment each month, your home purchase is going to come with some initial expenses, including a down payment. This payment is handy, however, because it allows you to pay part of your mortgage upfront making the length of the loan payoff shorter or less expensive. Take a look at what a typical down payment will look like.
What is a down payment?
A down payment is the money that you have to pay upfront for a home you are purchasing that will be combined with the home loan for the total purchase price. Down payments will vary based on your credit score, the lender’s requirements, your annual income, and your credit history.
Down payments can also vary based on what type of loan you are getting, such as a VA loan or a FHA loan. The typical down payment amount is 20% of the mortgage loan, but that is not always the percentage a buyer will pay.
If your down payment is under 20%
In the cases where a down payment is under the standard 20%, you are likely working with a lender that will allow you to spend less on your down payment because of a lower income qualification. You’ll have to finance a larger amount which means the life of the loan will cost you more with a longer amount of interest, and your payments may either take longer to pay or cost you more each month.
Down payments that are over 20%
In some cases, the down payment will require more than the standard 20%. This typically happens when the credit rating is very low, but in some cases, a buyer chooses to put down more than 20%. This is likely to help get lower payments each month and to avoid mortgage insurance payments.
Down payments at 20%
If you are at the standard 20%, you may feel overwhelmed paying such a high number from the start. Some of the lower down payments can be as low as 3.5% down or even nothing down, but paying your 20% sets you up for success.
You’ll end up paying less on the life of the loan and you’ll avoid being required to get mortgage insurance, a requirement for those that put down less than the 20%. Another huge advantage to putting down 20% is that you’ll benefit from a more favorable interest rate.
The general rule of thumb is that by putting down a higher down payment, you’ll have a cheaper mortgage. You may be required to put down 20% or more, or given the opportunity to put down hardly anything, but be sure to keep in mind what your down payment will end up costing you in the long run.
Contact Redzone Realty Group today to make sure you’re on the right track for your new home purchase. Good luck!