One of the hardest aspects of purchasing a home is being able to finance it. The majority of lenders require the homeowner to make a 10 to 20 percent down payment. There are lenders who offer lower down payments, some as low as 5 percent or even 3.5 percent if it is an FHA-insured loan. But with FHA-insured loans, the homeowner has to pay a mortgage insurance that will last however long the loan lasts, causing your monthly payments to increase.
A lender will provide you with information on your personal loan options. They study your credit, past employment, assets, and your current and past debt-to-income ratio. Lenders are evaluating whether or not you will be responsible in paying your loans. Before meeting with a lender, it is important to know the advantages and disadvantages of the different payments available.
A 20 percent down payment is a lenders favorite. The soon to be homeowner is investing a large sum of money, increasing the probability that they will be responsible in making their payments. With a decreased amount of risk for the lender, private mortgage insurance (which insures the lender in the chance that the homeowner fails to pay the loan) is not required. At 20 percent, the interest rate is lower and the monthly payments are smaller. However, the disadvantage of making a large down payment is that it takes a considerable amount of money away from other investments and costs. In San Diego, with the average sale price at $532,614, the homeowner will need to make a down payment of $106,423.
A down payment of 10 percent or less quickens how soon someone may be able to purchase a home, as they will not have to save up as much money. Smaller down payments increase the risk for the lender. This means that the individual purchasing the home will have a more challenging time qualifying for a loan and that he or she will have to pay private mortgage insurance. The private mortgage insurance and the fact that the loan will be larger will augment the monthly payments. In comparison to a 20 percent down payment, the interest rate will be greater.
The best way to go about making the decision on what percent of down payment is right for you to pay is to find a trustworthy lender. The amount of the down payment is affected by the financial situation of the purchaser and the prices of homes in the area. Each person’s finances need to be individualized to what he or she can afford.
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