Down Payment Strategies for the Home Buyer

You probably heard that you need 20% down to buy a home. That is not always the case. Some programs only require a 3% down. If you are an active member of the military or a veteran, you may qualify for as little as 0% down. Some buyers opt to put 5 or 10% down. With all those options, how much of a down payment do home buyers really need? Well, it depends.

Down Payment Strategies for the Home Buyer

20% or More Down

Let’s say that you want to buy a Westfield area home for $750,000. Twenty percent of that is $150,000. Then, you only need to finance $600,000. That means a lower monthly payment. It also eliminates PMI (Private Mortgage Insurance). This is the monthly fee a lender charges anyone who borrows more than 80% of the sale price. It protects the bank in case you default on your loan. Not paying it may save you several hundred dollars a month. Plus, the higher down payment opens you up to better mortgage rates. With rates hitting the upper 6% level, home buyers want to save where they can. However, on the flip side, putting more money down may lower or even deplete your emergency savings. It also may take a bit longer to save up for. Fortunately, you have other options to choose from as well.

Less Than 20% Down

As I stated before, some programs require as little as 3% down, with the VA loan available for 0% down. On the plus side, less money down lowers your move-in costs. This leaves more money for your emergency or home maintenance funds. On the other hand, a lower down payment means that you borrow more for your loan. In turn, that translates to a higher mortgage payment. Plus, you pay that pesky PMI I talked about earlier. While less than 20% may not nab you those lower interest rates, putting 5 or 10% down instead may qualify you for a lower interest rate than putting the bare minimum down. Also, even that slightly higher down means paying a smaller PMI per month.

Always talk over your options with your lender before deciding which down payment strategy to go with. Your lender should always be the first person you talk to when considering a Westfield area home purchase. The second person you should talk to is me.

Scott Gleason, CRS at Coldwell Banker Westfield, NJ Luxury Homes