01 Oct Basics and Options for Down Payments
Within any mortgage situation, the down payment is one of the largest consideration. A down payment refers to how much cash you put down up front when buying a home, and it can be a daunting number for many people.
At City Creek Mortgage, we’re here to help. There are likely more options available than you might think when it comes to the down payment – ways you can exchange certain benefits in other areas of the loan for a lower down payment, or others where you might not even have to make big sacrifices. Let’s look at the basics of a standard down payment, additional options and what these might mean for you.
Standard Down Payment
In most cases, the standard down payment for a mortgage loan will be 20 percent. If the home costs $200,000, you’ll be expected to put up $40,000 in advance. Having this amount on hand increases your chances of loan approval, and also ups your chances of getting the best mortgage rate. You’ll also likely pay lower fees.
Remember to consider other upfront payments, such as closing costs and earnest money. All these payments combined can create issues for some buyers.
There are other options for lowering down payment. FHA loans, backed by the Federal Housing Administration, can drop down payments as low as 3 percent. Fannie Mae and Freddie Mac, two government-sponsored companies that drive the credit market, will also offer lower down payments on some loans. There are also housing programs for active or retired service members, or for people living in rural areas.
There are some trade-offs with these lower down payment programs in most cases. There will usually be an additional upfront fee, and you may have to pay private mortgage insurance to cover the lender in case of a default. There’s also a chance you’ll pay a higher interest rate.
Choosing the best option with a down payment in mind will often come down to which upfront costs are included, and which trade-offs you have to make to get a lower payment. Some people are in a financial situation that makes one option or the other the clear choice.
To learn more about down payments or to get advice from our brokers, contact City Creek Mortgage today.