When faced with the daunting task of purchasing your first home, you may be wondering: what sort of down payment do I need? While the answer is slightly different for every buyer, depending on the demands of the lender, your credit score, and the financial climate, knowing what is expected can help you plan for the purchase before you view your first property.
To be absolutely secure that you’re ready to purchase a home, you should have 20 percent saved as a down payment. In most cases, this will negate the need for private mortgage insurance and could even cause you to be offered a lower interest rate. Having a large payment down means that you already own a significant portion of the home and are far less likely to default on your mortgage. It also helps prove that you are responsible with your money and had the financial discipline to save such a large portion before making the leap into home ownership.
If you don’t have a large chunk of cash socked away, there’s no reason to despair. There are still lenders who understand that not everyone can have 20 percent down. This is especially true in markets where real estate is highly valued and rents are exorbitant. After all, in New York City, an apartment could cost a million dollars to buy and rent for $4,000 a month! Expecting potential buyers to have $100,000 down is asking a lot of the average worker. You may be able to buy with as little as three or four percent down if your credit, job history, and income meet the lender’s guidelines.
Navigating your first home purchase and understanding your expected down payment can be confusing. Being open and honest with your lender can help expedite your loan process and help you purchase the home of your dreams!