With a hot residential real estate market and US homes averaging under $440,000, you may wonder how you can afford a down payment on your dream home. In this article, you’ll learn the importance of offering a down payment to remain competitive in the current seller’s market.
Understanding the Importance of a Down Payment
A down payment is more than a good-faith commitment to a house you want to buy. The more you can put down, the more attractive you are to sellers. So, a healthy down payment can make you more attractive than home seekers unwilling or unable to sweeten the deal with more money committed upfront. Therefore, the short answer is — as much as you can afford.
If you have questions about the loan process, we highly recommend you meet with a Potempa loan officer to find out more about your local market. You’ll also need pre-approval for real estate agents and sellers to take you seriously. So, the sooner you stop by, the sooner we can get you into a new home.
In the meantime, here’s how to determine how much you should put down on a home.
How Much of a Down Payment Should You Make?
You may be surprised to learn that the down payment you need depends on the type of home loan and not the actual home you buy.
FHA loans require 3.5% down, and conventional loans require 5% to 20% of the home’s value down. At the same time, some loans don’t require a down payment (VA loans, for example). Jumbo loans usually have high down payments of up to 20%, given that they are used to borrow large amounts of money. Potempa offers these and other loan products to help you realize your home ownership dreams.
Why Should You Make a Large Down Payment?
Besides making your offer more competitive, a sizeable down payment will lower the total you must borrow and, subsequently, your monthly payments. The total interest you pay will also be smaller. The trade-off is that you’ll have less cash for renovations.
How Can You Buy a House With No Down Payment?
You can buy a home with $0 down. However, you can’t obtain a no-down-payment conventional loan. That means you’ll need a government-backed mortgage if you have no down payment. These are loans insured by the government, meaning they pose less risk to lenders. Lenders like government-backed loans because they have lower rates and more lenient down payment requirements.
As an example, veterans may qualify for a VA loan. Current and former armed forces personnel may not need any money down to be eligible for a VA loan at Potempa. The USDA also backs mortgages for homeowners willing to buy homes in more remote communities.
Contact your local Potempa team to discuss the best way to minimize your down payment without jeopardizing your opportunity to buy a new home. If you have more money available to put down, we can help you assess the right amount to make your monthly payment affordable and entice sellers to say yes to your offer.