Down Payment for First Time Home Buyers
You’ve heard it before— down payment, down payment, down payment. As a first time home buyer you face many hurdles, but the down payment may seem the most overwhelming. Luckily, we are here with a few down payment tips to keep in mind as you begin the home buying process.
What is a Down Payment for a Home?
Whenever a home buyer can’t or doesn’t want to buy a home in all cash, they need financing. This financing is called a mortgage—a home loan that you pay off every month.
While there are different types of mortgages available, most banks require a down payment from the home buyer in order to qualify for the loan. A down payment is typically a percentage of the amount borrowed. For example, if you purchase a home for $500,00 and put down 20% of the loan as down payment you’ve put down $100,000 out of your own pocket and borrowed $400,000 (80%). This means that you’re only paying back the $400,000 rather than the whole amount.
By putting money down on your first home, you’ll substantially reduce your monthly payment, the length of your loan, and have a better chance at qualifying for a larger loan amount.
First Time Home Buyer Down Payment Tips
When considering buying your first home here are a few things to remember:
20% Home Down Payment Works but Others Do Too
In the past, banks expected 20% down before even considering anyone for a new home loan. This was especially true for first time buyers who don’t have a history of making their payments on schedule. However, there are multiple options available to first time buyers and repeat buyers alike.
Today mortgage lenders backed by the Federal Housing Administration, Department of Veterans Affairs, or Department of Agriculture offer low down payment loans. These loans can even require no down payment. Another option are FHA-backed loans that require as little as 3.5% down.
But there are still options for first time buyers looking to lend from conventional lenders. Conventional loans also offer down payment programs made specifically for first time buyers. These can be as low as 3% and even 0%. The only drawback from these low down payment options is that you’ll typically pay a higher interest rate and a higher monthly payment.
In fact, check out our financing page to get a better idea on your options using our mortgage calculator. You can even fill out an application to get started on the financing process.
Crowdfunding: The Newest Option
One of the newest options to saving money for a down payment is crowdfunding. Sites like FeatherTheNest.com give you the chance to gather money through gift registries. It’s a service best suited for first time home buyers who are typically newly engaged couples and newlyweds looking for help from friends and family. But one thing to consider with this option is the transaction fees are typically very high—about 8% for each contribution.
Prequalifying for a Downpayment on a Home
No matter what you do make sure that qualifying for the loan happens first. Don’t start your home buying journey by falling in love with a home only to find out that you can’t afford it. Start the process by finding what works for you. Set a budget. Know your budget. And don’t go over your budget. By prequalifying first, you know where to start and don’t get in over your head with excessive monthly payments. Fill out an application on our site to get a better idea about your options from a First Colony Mortgage loan officer.
Professional Advice Matters
If there’s any advice to consider it’s this: find a great real estate agent and loan officer. If you go into the home buying process alone, you’ll end up making more hard mistakes than healthy choices. Professional advice is crucial during big-time decisions and buying your first home is one of the biggest decisions you’ll make. Contact an EDGEhomes agent or First Colony Mortgage loan officer today to learn more about your down payment options.