How High Does A Home Down Payment Need To Be?

How High Does A Home Down Payment Need To Be?

You may have heard that the right down payment for a home is 20 percent of the total cost.  It’s true that a large initial payment like that is a good way to keep the interest rate down and lower your monthly payments, but these days you can find all kinds of home loans in Sacramento, CA that ask for much lower down payments than that.  In fact, the average down payment for a modern home loan is 5 percent of the total cost.

The Cost Of Waiting

There are a few reasons why you’d want to buy a home now with a lower down payment instead of waiting longer to save up that 20 percent.  For one thing, the housing market in your area could change dramatically in the years it will take you to save up that payment.  Another thing is the fact that you’ll be living in a rented space during those years and making monthly payments that won’t give you any future return.  Buying a home now means your monthly housing payments will start building up your equity.

The Variety Of Options

There are plenty of financial institutions in Sacramento, CA that offer home loans, including both public and private options.  Each institution can provide several options.

  • Conventional Private Loans. These loans come with straightforward terms like fixed-rate and variable-rate interest payments, and on average the minimum required down payment is 5 percent. Some loans will go as low as 3 percent, but the payments and interest may be higher to balance that out.
  • No Score Loans. Some institutions offer home loans to people with a low credit rating or no rating to speak of. The terms aren’t as good as you can get from a conventional loan, but it’s a way to own your own home.
  • Federal Housing Administration Loans. The FHA sets the standard for housing loans in the United States. You can usually get a good deal from an FHA loan since the government backs them up, but you also have to meet a few requirements that private lenders won’t ask for.
  • Veterans Affairs Loans. Just like the FHA loans, VA loans can give you a much better deal than what the private market offers. Of course, to qualify for a VA loan you need to be a veteran of the American armed forces (or closely connected to one).

The Down Payment Assistance Options

Another way to lower your down payment is to sign up for a down payment assistance (DPA) program.  These programs can pay some or all of a down payment if you qualify for their assistance.  There are thousands of DPA programs nationwide, so do some research and find out which ones offer assistance in Sacramento, CA.

Saving up for a big down payment is a useful strategy, but so is buying a new home when interest rates are low and locking it in for a fixed mortgage.  There are a hundred factors to consider, so consider asking for help from the Professional Mortgage Associates.  We’ll be happy to explain the pros and cons of every mortgage payment strategy you can use.