The Down Payment

The down payment is an important part of the home-buying process. Consumers should know how they plan to fund their down payment before they apply for a mortgage loan.

Your down payment will affect the amount of your mortgage loan and may even impact the approval process. For example, if you are a prospective home-buyer with less than perfect credit, some lenders may be more likely to approve you if you have a large down payment that constitutes 25 percent or more of the purchase price. If you have a small down payment, lenders may require that you have excellent credit.

If you have a large down payment available, it also means you can afford to spend more on your home. For example, assume you can afford a monthly mortgage loan payment of $1,060 and you lock in an interest rate of seven percent. If you make a 20 percent down payment, you can afford to purchase a house that is worth $199,158; however, if you put down five percent, the same monthly mortgage payment of $1,060 will give the purchasing power to buy only a home that is worth $167,713 or less.

Consumers who are ready to purchase a new home, especially first-time buyers, may be confused about how much of a down payment they need. The first step is to talk to your lender. They will advise you about the minimum down payment necessary for you to quality for a mortgage loan. In some cases, a small down payment is sufficient; and certain lenders, especially those insured by organizations like the Veterans’ Administration or the Federal Housing Authority, can help individuals who can’t come up with even a minimal down payment.