Home buyers everywhere have lots of questions about the process they are getting ready to take on. Before they make such a big decision they want to know that they are making the right choice, taking advantage of every beneficial opportunity. When looking at loans or getting pre-qualified, the topic of the down payment comes up. Here are just a few things to consider if you want to buy a home without a down payment.
Without a down payment many banks won’t finance the loans. A down payment is just a portion of the cost of the house. However, it is a way to let the builder or owner of the home know that you are serious about the purchase. In most cases you will need to put down earnest money in order to create and submit an offer on the home. This money then becomes part of the down payment.
If you don’t have cash to put down to begin with banks may not take your loan request seriously. This can be frustrating as a potential homebuyer. There are programs that will allow you to apply for down payment assistance. Some loans will allow you receive the down payment as a gift from someone else or even create a smaller loan for you to pay the down payment back.
A down payment reduces the amount you are financing with loans. In essence the amount that you put down will not be financed and therefore not incur any interest costs. Depending on the size of your down payment, you may be able to reduce the monthly payment.
If you don’t put down any money you are financing the entire cost of the home. In this case you will need to pay mortgage insurance. If your home to value ratio is 80% or more you are required to pay mortgage insurance. If your down payment is 20% of the value of the home you will not have to pay mortgage insurance.
The more of a down payment you put down the closer you are to dropping off the mortgage insurance premium that you pay each and every month as part of your house payment. Home loans typically come in 15 or 30-year options. This means it will take that amount of time for you to pay off the loan. If you have a sizable amount for a down payment you might be able to afford a 15-year loan payment and end up paying less interest.
There are some reasons that an individual would consider not putting down money towards one of their loans. This money is tied up in your home. You can’t get to it if you need it. While it is part of your investment, it isn’t accessible. For some homebuyers the idea of giving up all of the money they have in savings to purchase a home leaves them with no safety net. This can be scary.
For everyone there is a balance that must be achieved. When you speak with a loan officer find out how much money is recommended as a down payment. Also, ask about loans that offer a special benefit like having the down payment made for you. While there are certain qualifications that need to be met, this is worth looking in to. Balance having money in your savings account while still being able to put a down payment on your home loan.