How Much of a Down Payment Do YOU Need for Your New Home?
Once home buyers begin the process of building their new home, they often overlook the importance of a Down Payment. This can be a daunting, tall hurdle for some. So, how much do you REALLY need to put down on a home?
Plan Ahead and Save
Many home buyers have dreamed or at least done some research months, maybe years before they are finally ready to start the building process. Once you know that you are ready to build your new home, it’s important to start saving up for your Down Payment. This is the amount of money you spend upfront to purchase the home and is typically combined with a home loan to fulfill the total purchase price of a home. In addition to your Down Payment amount, your credit score, credit history, total debt and annual income will influence how much of a loan you can qualify for.
Zillow offers a great tool, the affordability calculator, to approximately calculate how much home you can afford. Here you enter in your annual income, monthly debts and a Down Payment amounts to generate the overall price of a home you can comfortably afford.
The Standard for a Down Payment
A 20 percent Down Payment is considered ideal, and it also gives you many benefits. Putting that larger amount down lets you avoid paying private mortgage insurance (PMI), it can help you qualify for a lower interest rate, which can help you save thousands over the life of your loan. It will also give you more equity faster, and it will result in a smaller monthly mortgage payment.
There are Many Ways to Cultivate a Down Payment
Saving money over time is just one way to build up enough money for your Down Payment. In fact, there are many financing options available! Many people building their new home use the net proceed from the sale of their existing home. Additionally, some home buyers choose to fund part or all of it with the sale of personal property of value other than real estate.
Our new Buy & Save plan helps you save the necessary funds to buy your brand new Jagoe home. A Jagoe New Home Sales Consultant helps you set up a specific schedule during the building process that allows you to make weekly or monthly payments so your Down Payment is fully funded in time to close.
Gift Funds are another way to partially or wholly fund your payment. This is usually an outright gift of cash from a relative, employer, labor union, charitable organization, government agency or public entity.
You Do Not Have to Put Down 20 Percent
While getting a Zero-Down Payment loan is challenging and you have to meet a strict set of criteria, there are other programs that offer lower down payments that may be more achievable.
One of the most popular of the Low-Down Payment loans is a Federal Housing Administration (FHA loan), which allows for 3.5 percent down. One of the downfalls of this program, however, is that you still have to pay mortgage insurance premiums to protect the lender if you default on your loan.
Buyers are also taking advantage of two Fannie Mae loans; Conventional 97 and HomeReady mortgages, which both allow for a minimum down payment of just 3 percent. HomeReady mortgages are designed for creditworthy, low to moderate income borrowers, with expanded eligibility for financing homes in designated low-income, minority, and disaster-impacted communities. Conventional 97 mortgages are designed to help creditworthy home buyers who would otherwise qualify for a mortgage but may not have the resources for a larger down payment.
Outside of these Fannie Mae, FHA, VA and USDA loan types, there are state and local assistance programs that can help you get into a home with a low-down payment. There are also towns that offer incentives to move there, ranging from student loan forgiveness to free lots of land to build on. Even though these programs don’t cover your down payment for you, they can help you save money elsewhere if you can come up with the initial down payment up front.