The down payment you can afford has a significant role when purchasing a new home. Other than affecting the amount of mortgage you can borrow, it can also influence your interest rate, the right type of loan for you, and your monthly mortgage insurance, if any.
Various loan programs require different down payment percentages, which usually range from 5% to 20% of the home value.
The Ideal Payment
Mortgage lenders here in Portland note that if you want lower monthly payments, it is ideal to put down at least 20%. This will help you avoid private mortgage insurance (PMI), which is necessary if you pay less than the said percentage.
A sizeable down payment will not just make you an attractive borrower but also help you qualify for a lower interest rate, along with affordable monthly payments.
Low Down Payment Options
There are low down payment financing options for those who cannot afford the recommended 20%. Some programs allow a zero to 3.5% down payment. FHA loans require a minimum of 3.5% with a good credit score to qualify.
Such loans, however, will require you to pay PMI, which can add to your monthly payment. The payment will stop after reaching the 20% mark.
Put as Much as Possible
It may not be strictly necessary to put a 20% down payment, but you should strive to put more as much as possible. Note that your down payment creates an equity, which can help lower your rate and boost your credit score. This is why it is better to save as much as you can before applying for a loan.
A sizeable down payment shows discipline, which then makes you an ideal borrower.
To qualify for a loan, it is important to demonstrate your willingness to pay for a down payment. This will show the lender that you serious about the home purchase.
Apart from your willingness to pay, you should also have a good credit rating and low debt-to-income ratio. These factors will help you score a better deal and move forward with the house purchase.