First Time Home Buyer Down Payment

Understanding how much you should spend on a down payment first requires understanding what a down payment is. A down payment is part of the purchase price of your home that is paid upfront. The amount that you pay for a down payment does not come from a lender. Instead, it’s money that you put down to buy your home based on your income and savings.

Funding a Down Payment

Some people can afford a down payment just using their income alone. But others may require additional sources of funding to cover the cost. Fortunately, if your income alone doesn’t cover the cost of your down payment, you can pay for the down payment using other financial means, too. The savings that you have in the bank can help pay for your down payment. Borrowing against your 401(k) can also help finance a down payment. Financial gifts from friends and family members may help you pay for a down payment as well. It’s important to note that you may be limited to certain types of finances for your down payment based on the lender.

How Much Should You Pay?

Now that you know there are more options available than just a 20 percent down payment, you are probably wondering how much you should pay for a down payment. Be aware that a lower down payment may sound enticing, but it comes with some caveats. If you pay less upfront, you may end up paying more in interest over time. You may also need to pay a mortgage insurance premium to cover the lender if you default on your loan. Paying more than you can afford on a new home, on the other hand, puts you at risk of defaulting. Keep in mind that along with the down payment, you’ll need to consider additional costs associated with your home too, including moving costs, monthly utility bills, and the closing costs. Your savings, budget, and income should be the main determining factors for the down payment on your new home.

How Much Home Can You Buy?

One question a loan officer Las Vegas can answer is home much home you can buy. Generally, experts advise getting a mortgage Las Vegas that is no more than two or 2.5 times their total income. Individuals who earn $100,000 each year, for instance, can afford to get a home that costs between $200,000 and $250,000. As a conservative estimate, experts recommend staying towards the lower end of the scale. That way, you can make sure you have enough savings to cover unexpected expenses, which may include home repairs, auto repairs, medical bills, and other unforeseen life expenses.

Why is a Down Payment Required?

A down payment is required for people who are taking out a loan to help purchase their home. Down payments ultimately reduce the risk to the entity providing your mortgage Las Vegas in several ways. For starters, homeowners who invest their money into their new home are less likely to stop paying their monthly mortgages. If the homeowner gets into financial trouble and the lender needs to default on the loan, the lender doesn’t bear the full cost of the home’s purchase price, limiting its potential losses.

In rare instances, a mortgage program lets homeowners buy a home with no down payment. These programs are limited to two government loan programs called VA loans and US Department of Agriculture (USDA) loans. VA loans are available to veterans and active service members. USDA loans are available to individuals with qualifying incomes who buy homes in rural places.

Conventional vs. Government-Backed Loans

Your personal down payment requirements vary by your loan program. Conventional loans, which typically have fixed-rate loans, are not backed by the government, but they follow guidelines from Fannie Mae or Freddie Mac. They are available as a fixed-rate or adjustable rate mortgage Las Vegas that may require private mortgage insurance (PMI). Government-backed loans may also require PMI, but they may ask for a lower down payment of 3.5 percent or less, and they may be available for individuals with lower credit scores.

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If you are buying a new home, it’s essential to understand your requirements and eligibility for a down payment. Contact an expert loan officer Las Vegas today to make sure you are prepared to buy your first home.