How much Down payment do I need?

Probably the most difficult and time consuming part of buying a house is simply saving up for a down payment. But the question is, how much?

Well, it depends on the type of loan your applying for, the loan size, and whether you plan on living in the property you’re buying.

Common Loan Types

FHA – the minimum down payment requirement for this loan is 3.5% of the purchase price. This is the most common loan that is used by first time home buyers.

Conventional – the minimum downpayment is 3% for a conventional loan, as long as the loan size is under $417,000.

Though this might seem like a better deal than the FHA loan, because you have to put less down, it usually results in a higher mortgage payment because mortgage insurance rates tend to be higher when putting 3% down on a conventional loan than 3.5% using an FHA loan.

VA Loan – Depending on your VA eligibility and the purchase price of the property you’re going to buy, then there’s a good chance that you won’t have to make a downpayment.

Additionally, if you qualify for a VA loan, then you won’t have to pay mortgage insurance in your monthly payment.

Pretty cool, right!

*On a side note, there are down payment assistance programs, which can be used in conjunction with an FHA or conventional loan, which can allow a buyer to put as little as .5% down!

Loan Size

Believe it or not, but loan sizes have an impact on how much of a downpayment you’ll have to make on your future home. For example, assuming that you’re getting a conventional loan under $417,000, then you would only need to save up 3% as a down payment.

However, if the loan size is between $417,000 and $625,500, then you’ll have to put at least 5% down on the property.

If the loan size is above $625,500, you will typically have to put a minimum of 15% down.

So to summarize: (for conventional loans)

Occupancy

A final thing that impacts the amount of downpayment you will have to come up with, is whether or not you are occupying the property.

Did you know that you will almost always have to put more down payment if you buying a second home or investment than if you were buying a primary residence?

For example, lets say you were buying a beautiful property in southern California that was listed at $450K, and you were planning on using a conventional loan to buy it.

If you are going to be using the property as your primary residence (and you indicated so on your mortgage application) then your minimum downpayment would be 5% or $22,500.

However, if you were purchasing that same house but wanted to use it as an investment property, then your minimum down payment would be increased to 15% or $67,500.

Three times the down payment!

So what?

To sum it all up, you can probably see how quickly a simple thing like down payment amount can become complex.

Because of that, it’s always best to work with real estate professionals who understand both the real estate and lending sides of a purchase transaction.

And guess what? You don’t need to look any further, because those experts are LionsGate REG

5 Signs That Show You’re Ready to Buy

So you’re thinking about buying a home but not sure if it’s the right time?

Here are some signs that it might be a sound financial decision to buy.

 

1) You’ve had a job for 2+ years. 

If you’re looking to get a home loan to purchase a property, then it’s a good idea to talk to a bank first so that you know how much house you can afford. One of the first things that banks look at when determining what your future purchase price will be, is your job.

Usually they’ll want to see that you have two years or more of working experience at the same job or in some cases in the line of work. The one exception to this rule is that if you have a four year degree from a university and you get a job in a field related to your degree, then the bank will consider your education as past work experience.

With that said, showing that you’ve had a job for more than two years, gives the bank confidence that you are likely to continue with that job, or in the same line of work, and therefore are more likely to continue making your mortgage payments.

 

2) You’ve saved up enough money for a downpayment or to at least cover some closing costs.

Having money in the bank is also a good financial sign that you’re ready or at least getting close to purchasing a property. Most first time home-buyers use an FHA loan, which requires a minimum of 3.5% of the purchase for the down-payment. So if you’re hoping to purchase a property that is $300,000 then your down payment would be 3.5% of $300,000 or $10,500.

When purchasing a property, a good rule of thumb is that you want to have around $5-10K above whatever your downpayment amount will be, so that you can cover any closing costs for the transaction.

Don’t have enough capital yet? Then it might be a good idea to either wait, or to ask someone in your family if they would be willing to gift you funds towards your downpayment or closing costs.

 

3) You have good credit.

Credit scores play a large role in determining how much house you can afford. Because the interest rate that a bank will quote you is based on your credit scores, the lower your credit is the higher your interest rate and mortgage payment will be. This in turns means that you won’t be able to afford a higher purchase price than if you had had better credit.

When a bank runs your credit report, your credit scores are usually lower than when a consumer credit report is run (e.g.CreditKarma.com, FreeCreditReport.com). This is because a mortgage credit report takes a more in depth look at a borrower’s credit than a consumer report. If you don’t know what your mortgage credit scores are, then it’s a good idea to get a mortgage credit report run by a bank so that you know where you stand.

Credit delinquencies such as derogatory payments, collections, judgements, bankruptcies, short sales, and foreclosures all negatively affect your credit and can potentially disqualify you from getting a home loan.

 

4) You’ve saved up enough to cover maintenance of the new house. 

This one is similar to #2 on this list with regard to saving enough money. However one expensive that a lot of new home owners often overlook is the cost of maintaining their new property.

Once you buy a property you are the landlord.

This means that you are responsible to cover any issues with plumbing, air conditioner/heating systems, appliances, repainting, roof repairs, carpeting, the driveway etc…

With that said a good rule of thumb is to set aside 1% of the original cost of your property every year for maintenance on it. For example, if you purchased a $300,000 property, you should have around $3,000 available to cover any costs for upkeep. That doesn’t necessarily mean that you will be spending $3,000 every year on maintenance (some years it might be less, and some years it might be more), but this is what it will most likely average out to.

 

5) You’re Pre-Approved for a Mortgage.

The last and probably most important sign that you’re ready to purchase your first home is that you’ve been pre-approved by a trusted lender who has evaluated your income, credit and assets to determine how much house you can afford. When you’re pre-approved it not only gives you confidence in knowing you can purchase the homes you’re looking at, but the purchase offers you make on these houses will look stronger to the seller. The stronger your offer looks, the more likely it is to get accepted.