Down Payment Guidelines On Home Purchase Mortgage Loans

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This ARTICLE On The Down Payment Guidelines On Home Purchase Mortgage Loans Was PUBLISHED On April 17th, 2020
What are the guidelines for advance payments for buying a home Mortgages
The Down Payment Guidelines On Home Purchase Mortgage Loans depends on the individual home loan program.
  • For example, under HUD Down Payment Guidelines, the homebuyer needs to come up with 3.5% on FHA loans
  • Homebuyers need a minimum of a 580 credit score to qualify for a 3.5% down payment FHA loan
  • Mortgage borrowers can qualify for FHA loans with under 580 credit scores and down to 500 FICO
  • However, per HUD Down Payment Guidelines, borrowers with under 580 credit scores and down to a 500 FICO need to put a 10% versus a 3.5% down payment on a home purchase
  • Many homebuyers can easily afford a new mortgage housing payment
  • However, coming up with the down payment is the issue most homebuyers face

In this article, we will discuss and cover the Down Payment Guidelines On Home Purchase Mortgage Loans.

What Are The Down Payment Guidelines Versus Closing Costs

With the exception of VA and USDA loans, all mortgage programs require a minimum down payment requirement.

  • There are two types of costs involved when buying a home
  • The first cost is the down payment
  • The second is the closing costs
  • The down payment is a fixed percentage
  • The amount required depends on the loan program
  • Closing costs vary on various factors including the area the property is located
  • Most of our borrowers at Gustan Cho Associates Mortgage Group do not have to worry about covering for closing costs
  • Our team of experienced loan originators will instruct the buyer’s realtors on how to get sellers concessions so the buyer does not have to pay for closing costs out of their pocket

If the homebuyer is short of covering the closing costs with the sellers’ concessions, the lender can give a lender credit to cover the shortage.

How Much Home Can I Afford Versus Qualify

How much home can I afford compared to qualification

A home is most people’s largest investment in their lives.

  • There are many thoughts homebuyers should consider prior to pulling the trigger on a home purchase
  • When homebuyers get a pre-approval by the loan officer, find out what the monthly payments PLUS other housing expenses are
  • Mortgage underwriters do not take utilities, personal finances, education expenses, child care, elderly care, vacation, and other personal expenses when qualifying borrowers for a mortgage
  • Seriously think about what the maximum housing payments you will be able to afford
  • You do not want to be house rich and poor in keeping up with your lifestyle

In the following paragraphs, we will discuss and cover the frequently asked questions by first-time homebuyers when buying a home.

Down Payment Guidelines For First-Time Homebuyers

Many Americans are still under the impression they need 20% down payment plus closing costs to purchase a home. This is not true.
  • The down payment guidelines for homebuyers depends on the loan program
  • The down payment is the portion of the home price that buyers pay upfront
  • It is the buyer’s contribution toward the home purchase
  • In the past, the traditional down payment on a conventional loan was 20%
  • With 20% down payment on conventional loans, there is no private mortgage insurance required
  • Now, first-time homebuyers can qualify for a home with a 3% down payment
  • Most homebuyers do not have to worry about paying for closing costs out of pocket
  • Closing costs can be covered with a seller’s concession and/or a lender credit
Most homebuyers do not have the 20% down payment for a home purchase. Most homebuyers pay between 3% to 5% down payment. VA and USDA loans offer 100% financing with no down payment required.

Minimum Down Payment Guidelines Versus Larger Down Payment On Home Purchase

What are the guidelines for minimum advances compared to larger advances when buying a home

Homebuyers can put more down payment on a home purchase than the minimum required.

  • Some buyers want a lower monthly housing payment so they put more money down on a home purchase
  • Others want to put the bare minimum down
  • According to the National Association of Realtors the average down payment for first-time homebuyers was 6%
  • The down payment data skyrockets to 12% down payment for all homebuyers
  • The average down payment for repeat home buyers is 16% according to NAR data

In the following paragraph, we will discuss and cover the down payment requirements on government and conventional loans.

Down Payment Guidelines On Government And Conventional Loans

Below is the minimum down payment mortgage guidelines on government and conventional loans:

  • HUD requires 3.5% down payment for homebuyers with at least a 580 credit score or higher and 10% down payment for homebuyers with credit scores under 580 down to 500 FICO
  • Veteran’s Affairs (VA) loans: 0% down, 100% financing on VA Mortgage
  • U.S. Department of Agriculture (USDA) loans: 0% down, 100% financing on USDA Loans
  • Conventional loan 97 (available from Fannie Mae and Freddie Mac): 3% down
  • Conventional loans for repeat homebuyers require 5% down payment
  • The HomeReady Mortgage (backed by Fannie Mae): 3% down
  • Second-home conventional loans require 10% down payment
  • Investment property conventional loans require 15% to 30% down payment, depending on the type of properties

All conventional loans with greater than 80% loan to value require private mortgage insurance.

Down Payment Versus Private Mortgage Insurance

Piotr Bieda, COO of GCA Mortgage Group, said the following:

Another important factor to consider is mortgage insurance. In many cases, you have to pay private mortgage insurance (PMI) upfront and each month if you put down less than 20% on your mortgage. The purpose is to provide the lender with security in case you default. Some loan programs allow you to remove the PMI once you have 20% equity in your home while others don’t. The additional cost will add to your monthly payment and overall cost of your home, so it’s worth factoring in as you make a decision. A larger down payment can help you avoid PMI and keep your interest costs down but isn’t an option for all prospective home buyers, especially those buying their first home. Making a smaller down payment can enable you to get into your first home without having such a large lump sum. While it will cost more in the long run, it beats renting for many as you can lower your monthly payment and build equity. The right amount for you will depend on your unique situation. Luckily, there is no shortage of options making homeownership accessible to a wide range of buyers.

For more information about this article and/or other mortgage-related topics, please contact us at 262-716-8151 or text us for a faster response. Or email us at gcho@gustancho.com.

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