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Down Payments
Type of mortgage (VA, FHA, Conventional, etc.) The most common determinant of how much down payment will be needed is the type of mortgage you select and for which mortgages do you qualify. In general, FHA (Federal Housing Administration) mortgages will require the least down payment--often 3-5% of the selling price. FHA loans will have maximum loan caps--limits to the amount that can be mortgaged--depending on the area in which the property is located. Qualified military veterans maybe eligible for VA--Veteran's Administration—loans, which have the availability of 0% down payment. Conventional mortgages often require a minimum of 10% down, although there are occasionally lower down payment options available. It is wise; therefore, to have a firm grip on the amount of down payment you will have available so you don't waste time and money applying for mortgages with requirements you can't meet. Credit Another important determining factor regarding down payments is your personal credit history. Those who have excellent records of paying accounts will have the widest possible availability of down payment programs. Those with credit blemishes or problems will have less options--often requiring the mortgage lender to use a program which may require a 20% (or more) down payment in order to lower the lender's risk. In general, the better your credit the more opportunity you will have for a lower down payment and the worse your credit, the more likely that a larger down payment will be required. Property Appraisal A less common, but potentially determining factor in down payments is the lender's appraisal of the home. If, for example, you have a purchase agreement to buy a home for $175,000 and the appraiser's value determination is $168,000, that $7,000 difference will have to be dealt with. The seller can reduce the selling price by $7,000 (not likely!) or the buyer can increase their down payment by that amount (or a combination of both). In any case, the lender will use the appraisal as the basis for loan value rather than the contracted sales price. Where can I get my down payment? In general, any funds used for down payments on mortgaged real estate must come from savings. No money can be borrowed from any source--no credit cards, no personal loans (not even from family or friends), no credit lines can be accessed. You may, however, be able to receive a gift of funds for your down payment. Your lender will be able to discuss availability and requirements. What about "nothing down" deals? Except in the minds of the infomercial gurus selling their books and "training courses" on TV, nothing down deals are few and very far between. The reality is fairly simple--there just are not that many sellers who can (or will) sell their homes without a penny going into their pocket. In fact, to sell to a buyer with nothing down would actually mean that the seller would have to reach into their pocket to pay for costs associated with selling a home (commissions, deed transfers, etc.) This is not to say that nothing down deals never occur, just that to concentrate on trying to find one is almost always a colossal waste of time. Don't forget about closing costs! As you begin to compute the cash needed to purchase a home, don't forget about the costs associated with the closing or settlement of your purchase. The amount can vary by the type of mortgaged selected, but as a rule of thumb you will need 3-5% of the selling price in cash at the time of closing. Again, none of these funds can be borrowed.
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