What do you need to buy a home? A down payment is a good start. How much do you need? Most lenders suggest 20 percent but that isn’t a rule. If you qualify for certain loans, your down payment could be 3 percent or lower. Sound too good to be true? It isn’t. We’ve broken it down so you can get the home you want without breaking the bank.
Why Do You Need A Down Payment?
Your down payment is separate from your home loan. You need one to convince a lender that you are not a risk. If you use some of your own money to purchase a home, you are less likely to default.
Do You Need 20 Percent?
The suggested amount for a down payment is 20 percent of the purchase price of your new home. In Lago Mar, homes are priced from the $200,000s, which means you would need to put $40,000 down. A $300,000 home would require $60,000 down. You aren’t alone in thinking that’s a lot of money, but it is possible to find a loan that requires a smaller down payment.
Which Loan Will Work for Me?
There are many different types of loans. Some of them ask you to put 20 percent down but there are many that allow you to put anywhere from zero to 3 percent down. Most of these loans have conditions attached, but the money you save is worth it.
Conventional Loans: Conventional loans are offered by lenders at higher interest rates. Lenders have different requirements and set their own percentages, but it is possible to get a loan that allows you to put anywhere from 3 to 5 percent down. If you have a credit score above 620 points, you are more likely to get a better loan percentage.
FHA Loan: FHA loans are government-backed and require you to put at least 3.5 percent down. In order to obtain this type of loan, you will need a minimum credit score of 580. It is possible to get an FHA loan with a credit score between 500 and 579, but you will be required to put at least 10 percent down.
VA Loan: Veterans do not need a down payment to qualify. There are service requirements, however, and veterans should check with the Department of Veterans Affairs to see if they qualify. Spouses of active-duty military or veterans who have died in service or have a service-related disability also may be eligible.
USDA Loan: Homebuyers who are have not served can get a USDA loan that will relieve you of having to put money down. To qualify, your home must be in an approved rural or suburban area. Members of your household will need to meet income requirements as well.
If You Can, Does That Mean You Should?
Just because there are loans out there that require less of a down payment, that doesn’t mean it is the best option for you. There are advantages and disadvantages to putting less than 20 percent down.
If you choose a loan that will require a smaller down payment you will have to purchase private mortgage insurance (PMI). This is insurance that protects your lender if you default on your mortgage loan. However, you can request that your lender remove PMI once you’ve reached 20 percent equity in your home. Some lenders will do this automatically once you have built more than 20 percent home equity. With home values growing, reaching that 20 percent equity threshold can happen quickly.
If you put less money down, you may be looking at a higher interest rate. This means you will pay more interest over the life of your loan. The good news is that interest rates are very low right now so even a higher interest rate may not dramatically increase the amount of your mortgage payment.
Yes, You Can Buy a Home in Lago Mar
The good news is that these loans can help you live the lagoon life in Lago Mar for much less than you thought. Talk with a Realtor and your lender. You could be making the move to Lago Mar before you know it.