What You Need to Know About Down Payments

At RP Funding, we want to educate consumers by supplying them with the necessary tools and knowledge they need before they start looking to buy or refinance a home. For instance, when looking to buy a home - especially if you're a first-time home buyer - a major factor to consider is your down payment. Determining how much you can afford to put down on a home is a good starting point and will play a major role in what kind of financing you will need in order to move forward. Here's what you need to know about down payments.

If You Put Down More, You Can Borrow Less

Your down payment has a large impact on your monthly payment. The more money you are able to put down, the less you will have to borrow, thereby keeping your monthly payments lower. With most loans, if your down payment is less than 20 percent you will be required to pay monthly mortgage insurance.

If You Put Down Less, You'll Need Mortgage Insurance

Most lenders look to get a 20 percent down payment so that in the event of a foreclosure, the 20 percent you put down helps keep the lender from losing money. Mortgage insurance simply allows you to borrow more than 80 percent of home value while also protecting the lender in the event that you default on your loan.

Different Loans = Different Down Payment Amounts

There are many different types of loans, some of which allow you to put less than 20 percent down and do not carry mortgage insurance. Here are the down payment requirements of the most common loan types.

VA Loans:

VA Loans are special loans that are guaranteed by the Veterans Administration and are reserved only for those who have served in our country's military. It allows the borrower to purchase a home with no money down and also does not carry monthly mortgage insurance. However, there is an "up-front" mortgage insurance otherwise known as a Guarantee Fee.

USDA Loans:

Another type of loan is a USDA Loan. USDA financing, like the VA Loan, is 100% guaranteed and carries a high "up-front" mortgage insurance. However, it also has a high monthly mortgage insurance. USDA loans can take a long time to close and have income limits depending on the county. Additionally, with a USDA loan the home has to be in a designated rural area. You can visit the USDA's website to view maps showing which areas qualify.

FHA Loans:

FHA Loans are also an option when looking to buy a home. These loans have no income limits or location requirements but do require at least a 3.5% down payment. FHA Loans also carry a high "up front" as well as high monthly mortgage insurance.

Conventional Loans:

Finally, there are conventional loans with private mortgage insurance. These loans typically require 5% down, but with lower monthly mortgage insurance than an FHA Loan. So, although conventional loans require a higher down payment, the monthly payments should be lower.

Find a Loan That Fits Your Funds

With so many loan types, you should be able to identify one that is right for you and your financial situation. Contact RP Funding at (321) 397-4420 to find out which type of home loan you qualify for that supports a down payment you can afford.