CYBER WEEK SPECIAL - Rate over 6.125%? Refi and we'll pay your fees!* Call us at 801-501-7950

The Ins and Outs of Down Payments

If you’re ready to purchase a home, you likely have lots of questions. Knowledge is power! At City Creek Mortgage, our team is prepared and eager to answer all the questions you need to ask. We know the more you know about your mortgage, the better you will feel. 

The main concern first-time homebuyers ask about is the down payment. That term seems to loom over everyone’s head like a black cloud, and it doesn’t have to! Here’s a quick sampling of some of our most frequently asked questions and our answers to get you thinking about your first steps. 

Saving for a Down Payment 

Think about the down payment this way. The more you’re able to pay in cash upfront at the time of your home purchase, the less you’ll have to finance and pay over time. 

Most lenders will tell you that a good rule of thumb is to save 20% of your home’s total cost for your down payment. So, in simple terms, if your home costs $300,000, you’ll want to save $60,000 for your down payment. The good news is that you’re only financing $240,000. 

If that seems like an impossible goal, don’t worry! There are several types of mortgages out there that require less than 20%. Talk with your advisor about the best mortgage for your unique circumstances.  

Conventional Loans 

If you choose a conventional loan, your lender will likely expect a complete 20% down payment. However, that’s not always the case. 

If your down payment is less than 20% of the total purchase price of your home, you’ll likely be required to pay Private Mortgage Insurance (PMI). If that 20% seems unattainable, PMI can help. You need to know that it does add to the monthly payment in the short term, but once you’ve met the 20% threshold in payments toward your loan’s principal, you can stop paying PMI. 

Government Loans 

You may be eligible for government-backed loans, including Veterans Affairs (VA) or US Department of Agriculture (USDA) loans. VA and USDA loans require no down payment, and Federal Housing Administration (FHA) loans only require down payment minimums of 3.5%. You’ll need to discuss particulars with your lender to see if you qualify for these types of loans. 

Benefits of a Large Down Payment 

Large down payments have other benefits besides financing less of your purchase price. A larger down payment also means you may qualify for a lower interest rate because you’ll present less of a risk to the lender. 

If you meet the 20% threshold, you’ll also forego the PMI, and that can make a significant difference in your loan payment over time. 

A larger down payment will also mean that you’re starting on the right foot with lower monthly mortgage payments every month. There’s something to be said for that! 

City Creek Mortgage

Choosing a Smaller Down Payment 

Not many Americans can afford to save for a 20% down payment, and that’s just a fact. With so many balancing student loan payments, saving for retirement, even a child’s education, saving for something else may feel almost impossible. 

If the 20% down payment makes you feel like it’s going to deplete your existing savings or compete with other financial goals, it may be that you choose a lower down payment option or wait until you feel less squeezed. 

It’s always better to wait until the time is right than get yourself into an untenable situation in the long run. 

Bottom Line 

Homeownership is part of the American dream. Whether you’re a first-time or repeat homebuyer, purchasing a home can be an intimidating process. Do your research and start saving so that when it’s time to make your down payment, you’ll have the amount you need to make it happen.  

Don’t be afraid to wait until the time is right for you! Stress, worry, and anxiety are dream-killers. Make sure you’re not putting yourself or your financial future in distress by signing on for more than you can handle. 

About City Creek Mortgage 

City Creek Mortgage is the most trusted, respected, and loved mortgage lender in Utah. Our professional, knowledgeable, and friendly team will walk you through every step of the mortgage process. We want you to feel empowered and in control. 

Don’t let the homebuying process intimidate you out of pursuing your dream home. Our team is the best at finding ways to achieve your financial goals. Let’s work together to figure out if the time is right to buy or if we can help you develop a plan with the intent to purchase soon. We are here for you! 

Check out our website or contact us for an Instant Rate Quote today. You won’t regret it! 

Get your custom rate quote in 30 seconds

See your customized rate and fee options without sharing any personal information

See Purchase Rates See Refi Rates