The down payment is the amount of cash paid by the buyer towards
the purchase of real estate. The down payment plus the mortgage
amount will equal the total purchase price of the property. For
example, the home you want to buy is selling for $284,000 and the
mortgage you have applied for covers only 90% of the cost of the
home, the down payment would cover the other 10% or $28,400.
Different types of financing come with different types of down
payments. Generally speaking, the Veterans Administration (VA) does
not have a down payment requirement assuming the vet has full eligibility
and sufficient income to qualify for the loan and the property meets
VA property standards.
The Federal Housing Administration (FHA) calculates its down payment
in this manner: 3% of the first $25,000 of value and 5% of the remaining
value. There are currently some changes anticipated in the calculations
of the FHA loan amounts so check with your Realtor® or lender to
find out the most current information.
Conventional financing, which includes 30-year and 15-year fixed-rate
mortgages and Adjustable Rate Mortgages, allows a minimum down payment
of 5%. Depending on the amount, the down payment usually rises in
increments of 5% because of Private Mortgage Insurance (PMI) rates.
PMI is an insurance policy written by a private company to protect
the lender against loss caused by the home buyer defaulting on the
mortgage. The more you put down on a home, the less the PMI rate
is, and with a 20% down payment you eliminate the necessity for
PMI. With a 10% down payment on a fixed-rate loan of $348,000, your
PMI monthly payment would be just over $96.
