How Much of a Down Payment do First Time Home Buyers Really Need?
Financing is a top concern for many future homeowners. If you are planning to purchase a residential property, it is important to understand the various ways in which down payments can determine the conditions of your mortgage loan, your interest rate, your monthly premiums and more.
If you are a first time home buyer, there are plenty of options when it comes to financing. If you choose to buy from one of the most premier new home builders in Utah, McArthur Homes, you can be referred to the top-tier banks that they maintain working relationships with — known as preferred lenders.
What Are Some Options for a Down Payment on a House?
Down payments can vary from modest to sizable. Depending on individual circumstances, different factors can affect how much you need to put down. The key factors to consider are the short- and long-term effects of the initial dollar amount you are prepared to spend. Other factors which determine home loan terms are credit score, selling price and current interest rates.
No Down Payment
In some situations, you may be able to skip the down payment part of the process entirely. This can be the case if you qualify for a VA (Veterans Administration) loan or USDA (United States Department of Agriculture) loan. The first is for members of the Armed Forces (and surviving spouses) while the second is for people choosing to live in certain suburban and rural areas. While attractive, these loans carry very specific qualifications which you must meet before you can qualify. These types of loans are less common and are not offered at all financial institutions.
Meet the Minimum
How much down payment a first time home buyer needs, at the very least, is around 3% to 3.5%. Primarily, this applies to FHA (Federal Housing Authority) loans. So, if you have a relatively small amount of cash on hand and a credit score of 580 or higher, you can seek out this type of loan.
Conventional loans are similar, requiring a down payment of anywhere from 3% to 5% and a credit score of 620 or higher. With many lending institutions, the higher your credit score, the lower of a down payment they will accept. Meanwhile, applicants with lower credit scores will usually be required to make a higher down payment. For example, if your score is below 580 you will most likely need to make a down payment of at least 10%.
Ask for a Referral
Many first time home buyers in Utah who choose McArthur Homes can work with one of the company’s preferred lenders. These are institutions that have a long-standing relationship with the builder. In some instances, as a courtesy to McArthur’s clients, these lenders may accept a smaller down payment, offer a lower interest rate, accept a borrower with a mid-level credit rating — or all of the above.
Place a Larger Down Payment on The Home
If you can manage a large down payment, there are certain immediate benefits and long-term advantages. For example, if you can afford to put 20% down, you can qualify for a loan — even if you have a less-than great credit score.
A larger down payment can also make you exempt from having to buy private mortgage insurance. This is because of the amount of equity in the property you will already own at the onset of the loan agreement. Plus, 20% down gives you access to lower interest rates — which can save you a significant amount of money throughout the loan. Finally, a sizable down payment will lower your premiums, so that your monthly mortgage payments are very affordable.
This post was written by Paige Giles