Mortgage Down Payment Calculator
If you’re thinking of buying a house, your biggest roadblock may be coming up with the funds for your down payment. Having a steady income and good credit can help ensure that you can pay your mortgage, but having the cash upfront for your down payment is also critical. Lenders traditionally like for you to put 20% of the total offering price on the table, but PropertyNest’s Calculator can help you figure out how much or how little you can put down and what your monthly payments might look like.
What is a Down Payment?
A down payment is the portion of the money you must put upfront to purchase a home. This usually goes towards securing your contract, as an earnest money deposit for both the sale and your mortgage. It can be seen as your good faith or stake in the transaction to all parties. It can also show your financial strength.
The Traditional 20% Down Payment
It’s true that lenders like 20% down. Anything lower, and it’s usually seen as a higher risk loan as the lender must foot more of the bill, so to speak. 20% is $150,000 of $750,000. It may sound like a lot, but if you’re tempted to put down less it can equal a higher cost to you in the end with things like higher upfront fees, higher interest rates, and being required to purchase private mortgage insurance (or PMI).
When calculating how much you can afford to put down, you’ll also need to consider closing costs. These can include costs from the lender, taxes, utility bills, your attorney’s fees, title search and insurance, and filing fees.
Understanding the Results
While 20% is the traditionally accepted amount, it’s definitely not the lowest people put down or can put down. FHA loans, which are government-backed, for first-time home buyers offer loans for as little as 3.5% down, even with less than excellent credit. Typically, you can also get away with not purchasing private mortgage insurance. FHA loans also usually offer low interest rates.
The only caveat is that in New York City, all buildings such as condos and co-ops must be financially vetted by the program. Many condo and co-op boards don’t wish to subject themselves to this tedious process, so there are very few options for an FHA-loan user in the way of such properties. Furthermore, most New York City co-ops require 20% or more down.
Many private mortgage lenders and financial institutions provide their own programs that can offer mortgages requiring 3% or even less down for first-time home buyers. This also goes for veterans. The VA loan program offers 0% down mortgages and can qualify applicants with below fair credit as well.
Important Considerations for Down Payment and Mortgage
Figuring what down payment is right for you may simply depend on what funds you have available. If you have $75,000 in savings, you should probably not considering using every last penny for the down payment on a purchase price of $375,000. Instead, you’ll need to think about having extra for closing costs as well as reserving extra for any other unforeseen expenses.
As mentioned before paying less than 20% down, generally, makes your loan a higher risk loan as you are taking out a larger mortgage. While you can obtain a loan through FHA loans or even private mortgage lenders’ programs or as little as 3% down, you can actually purchase a home with about 10-15% with a conventional loan. The only caveat is that you will most likely be required by your lender to purchase private mortgage insurance. This is an extra amount to be paid each month along with your mortgage.
PMI may be an extra payment tacked on for the first few years depending on when your loan-to-value ratio reaches 80%. Furthermore, PMI is there to protect your lender and not you. It can’t prevent you from defaulting on your mortgage when you fall on hard times.
Some programs may not require PMI, but still hit you with fees at the closing table. Either way, it will cost you. In the end it’s the difference between paying more now or paying more later. However, with some great incentives for first-time home buyers which sometimes includes thousands of dollars in credits towards closing with little down, it may be worth investigating these options.