Buying a new home is not an easy decision. FHA loans and incentives available for first-time buyers make it easier, but there are still many considerations to make before you take the plunge.
One of these is how much you should put down on your new house in Texas. What are the rules? How does the down payment affect your mortgage qualification or monthly payments? Today the Texas United Mortgage team answers questions about down payments for first-time home buyers!
What is the Down Payment?
You've probably heard about "putting money down" on a house, but you might not know what it's really about. Unless you're paying cash-in-full for your first home (which is rare), you'll need to contribute a portion of the home's sale price in cash before you can finance the rest of the sale through an FHA loan or conventional loan.
Do you need to put 20% down, no matter the type of loan? With today's mortgage options and real estate market, many homebuyers can put little to no money down on a home to complete a purchase.
How Do I Determine the Ideal Amount?
Determining the percent down on a new home doesn't have to be challenging, but taking it lightly can be a mistake. Working with one of the best mortgage companies Texas offers is an excellent way to think through the purchasing budget for a home in your price range and plan your down payment.
Consider these factors when deciding on the ideal down payment amount:
The type of home loan you want
Your budget (and how much house you can afford)
The sale price of the house
How much time do you have to save for a down payment
Depending on your timing to close on a house, saving toward your goal can help you put more down on a home. When thinking through your budget and how much home you can afford, choose a realistic goal for the down payment. Not saving enough money (or spending months trying to save a significant amount) can put additional stress on your home buying process.
A mortgage expert can help you set a goal of an optimal amount that gives you plenty of FHA loans and other home financing options after the down payment.
Why Would You Put More Down (Than Less) for an FHA Loan?
If some loans offer as little as 3.5% of the home price as a qualifying down payment amount, why would you put more down than you need to? Shouldn't you keep your money and put it toward renovations or a monthly mortgage payment?
While that's not a bad way to think, putting down more money on a new house has plenty of benefits, including:
Borrowing less (and lowering your monthly mortgage payments)
Lower fees and upfront costs (like mortgage insurance)
With low down payments, you might qualify for a few loans. However, lenders want to protect themselves with higher interest rates and fees when buyers don't pay more into the home upfront with a more significant down payment.
What Kind of Down Payments Are Mortgage Lenders Talking About?
First-time home buyers have plenty of financing options, but it's critical to make sure the loan you choose doesn't leave you with high-interest rates that make your new home more expensive than it needs to be.
Work with one of the best mortgage companies Texas offers and an FHA-approved lender to review types of land and down payment requirements, like:
Veteran's Administration (VA) Loans
VA loans are a type of mortgage loan guaranteed by the United States Department of Veterans Affairs (VA). This program was created in 1944 to help returning veterans purchase homes without needing a down payment. VA loans can be used to purchase a home, build a home, or refinance an existing mortgage.
An FHA loan is a mortgage insured by the Federal Housing Administration. This means that if the borrower defaults on their mortgage, the FHA will pay the lender the outstanding balance. This makes it easier for people with lower credit scores to obtain a mortgage, as the lender is less likely to lose money if the borrower defaults. Homebuyers can put down as little as 3.5% for this type of mortgage.
USDA mortgage loans are mortgages offered to home buyers by the United States Department of Agriculture. These loans are available to people who meet the requirements for income, credit score, and other factors. USDA mortgage loans are an excellent option for people who want to buy a home but don't have a lot of money saved up for a down payment. This financing option does not require a down payment on a primary residence. However, they are specifically for rural and suburban homebuyers who must meet the program's income limits.
A conventional mortgage loan is a type of mortgage that is not insured or guaranteed by the government. This means that the lender assumes more risk if the borrower defaults on the loan. As a result, borrowers with conventional mortgages typically have to pay a higher interest rate than those with government-backed mortgages.
Many of these loans still require 20% down. However, mortgages like the Fannie Mae HomeReady and Freddie Mac Home Possible allow purchases to put as little as 3% down.
Make sure you understand the qualification requirements, loan limits, and other rules for each type of loan when planning your down payment. Some loan programs might not be available to you if you have a low credit score or a high debt-to-income ratio.
The Best Mortgage Company Texas Offers Helps Buyers Plan Your Down Payment
When you're a first-time homebuyer, it's hard to know how much you need for a down payment before knowing the type of loan that best fits your needs. The team at Texas United Mortgage is here to help! We have experts on staff who are ready and waiting to partner with you to walk through each step of the process, from determining what kind of mortgage will work best for your budget and helping you plan for the ideal down payment amount. If this sounds like something you want assistance with, don't hesitate to give us a call today!
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