You’ve been diligent over the years about tucking away money. Your credit history is good. You’ve got a steady job, and you’re finally making a decent salary. Plus, you’ve simply outgrown your current situation.
In other words, you’re ready to buy a house. But how much money will you need for a down payment? Below is a guide for home buyers explaining how much money they should put down and how to determine how much is too much.
Time to get your down payment
Before you apply for a mortgage loan, make sure you have secured the necessary funds well ahead of time. Mortgage lenders recommend getting your down payment ready at least two months in advance of applying for a loan.
How much money will I need?
Mortgage lenders expect home buyers to put down cash. Down payments typically range from 5 percent, 10 percent to 20 percent of the final sale price of the home. Obviously, the more money you put down, the lower your payments will be or the bigger the house you’ll be able to afford. So, for a $200,000 house, you’ll need $40,000 if you’re putting down 20 percent. Don’t forget, too, that you’ll need to include closing costs, which are typically between 3 percent to 6 percent of the sales price.
What if I have bad credit?
Those who have less-than-ideal credit histories may need to put down a larger down payment, usually between 25 percent to 30 percent. Don’t assume you’re credit history is unblemished, either.
I still don’t have enough for a down payment. Now what?
Those who don’t have the money may have to wait or investigate other options, including:
* 401(k) retirement plan: You can borrow money from your 401(k) retirement plan, provided you have enough equity to make it worthwhile. A word of caution: You will be charged a prime rate, and a small margin could also be added on.
* Family and friends: Your mortgage lender may require a statement showing the amount of money you receive from family, relatives or friends, then work it into your debt load. That’s usually not necessary, though, if the money for the down payment is considered a gift.
* Government agencies: You and your Realtor can look into mortgages insured by the Federal Housing Authority and/or the Veterans Administration. Those mortgages are guaranteed by the respective agency. In some cases, you might not need a down payment.
What’s it going to take?
The bigger the down payment you can afford, the more options you have. A bigger down payment allows you to afford more house while lowering your monthly payments.
About The Author Kevin Hughes is a Boise Idaho real estate agent servicing buyers and sellers in Idaho. If you’re looking for a great home in Idaho, you can visit Kevin’s website where you can search great cities like Boise, Meridian, Nampa, and Eagle.