What is a down payment?
Down payments refer to funds paid to a lender when financing a purchase. Down payments are common with auto loans and mortgage loans, and by paying a down payment, borrowers reduce how much they need to borrow. Down payments are typically a percentage of the sale price.
What is the average down payment on a mortgage loan?
The down payment required for a home purchase varies and depends mainly on the lender and the type of loan. FHA mortgage loans are popular as of 2011 because they require the least amount for a down payment. Applicants can get a home loan with a down payment as low as 3.5 percent, which is a huge difference from the 10 to 20 percent required on most conventional mortgage loans.
What are the benefits of a down payment?
Down payments not only help you qualify for a mortgage loan, they also help you negotiate the terms of your mortgage loan. Borrowers with large down payments typically qualify for cheaper mortgage rates, which result in a lower home loan payment. What’s more, paying a minimum of 20 percent down on a mortgage eliminates private mortgage insurance, which also increases your monthly savings.
Do lenders offer no money down mortgage loans?
Mortgage lenders scaled back on no money down mortgages around 2007 and 2008, following the mortgage crisis. The majority of lenders do require some sort of down payment, with the exception of mortgages offered by the U.S Department of Veteran Affairs to military personnel.
How can I save money for a down payment?
The more cash you have, the better your chances of getting a mortgage loan. Understandably, saving $10,000 or more for a house isn’t feasible for everyone. But with simple lifestyle changes, you can increase your personal savings and acquire enough money within a few years.
Create a budget and decide how much you will spend on housing, transportation, food and extras.
Cut back on shopping and dining out. Take the money saved and deposit these funds into a special account.
Skip your annual vacations.
Take a part-time job to deposit all earnings into a special account.
Save your tax returns and work bonuses.
Get rid of items that you don’t need by means of a yard sale or consignment shop.
“Let FHA Loans Help You,” HUD.gov
“Qualifying for a Mortgage,” Home Loan Learning Center