Now that you are ready to purchase a home, it is time to calculate the down payment costs. Your down payment will include the amount you are applying to the cost of the home and the closing costs. Being prepared for these costs can make a difference in your home buying experience.
Down Payment On The Home
Your down payment can be as low as 3.5 percent. Down payments this low will require that you purchase PMI (Private Mortgage Insurance) which usually comes from the FHA. PMI gives the lenders a guarantee that if you default on your mortgage they will be paid for the remaining balance of the loan.
Anyone who uses this low of a down payment may find that their loan options are limited and that they will have to pay a higher interest rate. This is because new lending regulations see a low investment into a home as a risk. Borrowers should also take into consideration that there is a monthly premium that must be paid for these insurance policies.
For a large selection of mortgages at the best interest rates, you should aim for a down payment of at least 20 percent of the sale price of the home. With this large of an investment, lenders will not require PMI.
As an additional bonus to making a larger deposit, your monthly payments on your mortgage will be lower.
Closing Costs
In addition to the down payment that you are going to make on the home, you may also be required to pay for some or all of the following fees:
• Loan origination fees
• Underwriting fees
• Credit report fees
• Home inspection and flood certificate fees
• Title search fees
• Taxes
• Loan points
Each lender will have their own standard for fees and costs, which makes it very recommendable to shop around for the best rates before accepting a loan. Some lenders will waive some fees when a large deposit is placed on the home.
Potential buyers should also take into account some personal expenses that will occur from buying a home such as moving trucks and utility deposits. When you are prepared for all of these costs, buying and moving into your new home will be very easy