A down payment is a portion of the cost of a home, paid up front. Generally, the more you put down, the lower your interest rate and monthly payment will be.
Your interest rate can be lower with a good down payment because putting down more money takes some of the risk off the lender’s shoulders. When you do that, the lender can reciprocate by giving you better mortgage rates. Think of your down payment as an investment in your home and in your lending rate.
Getting the lowest mortgage rate typically requires a down payment that amounts to at least 20 percent of the home’s purchase price.
However, it is not uncommon to purchase a home with a down payment of 15%, 10%, or even less. Some government-backed loans, such as FHA, USDA and VA loans, are available to qualified home buyers with a down payment as little as 3.5% or no down payment. If you haven’t already, review the different types of loans here before attempting to make a decision on the type of loan that is best for you.
Here’s another good reason for making a higher down payment: The more you pay up front, the less you will owe on your mortgage, because the amount of your down payment is subtracted from the total cost of a house. And this translates to lower monthly payments, depending on the number of years your loan is based on. Use this calculator to estimate your monthly payments based on the amount you borrow.
Several of these loan options are available through our Preferred Lender, FBC Mortgage Services.