The Real Estate Down Payment

April 12, 2010 - PRLog -- The Down Payment

Nobody pays cash for a house. Instead, you pay for most or all of it by getting a loan from a bank, called a mortgage. You will also probably make a down payment of 3 to 20% of the sale price, though sometimes it's possible to pay nothing down. Since everybody wants to know how to get a house with zero down, we'll cover that first.
More likely to lose your home. If you can't make a down payment it's either because you didn't have the financial discipline to save, or you're not making enough money. Either of those things makes it more likely that you won't be able to make the payments on your house, and that you'll get foreclosed on and lose your house. A study in Denver showed that over half of foreclosures involved nothing-down loans. Ouch.
Higher monthly payments. The less money you put down, the more you're borrowing. And the more you're borrowing, the higher your monthly payments.
Nothing down means a smaller home. The less you put down, the less the bank is willing to loan you. That means your options will be more limited as far as what homes you can buy. With a down payment -- any down payment -- you can get a bigger loan, and are more likely to be able to get the home you really want.
Harder to find the loan. No-money-down loans are harder to find than something-down loans, which are ubiquitous.
Harder to qualify. It's harder to get a bank to give you a no-money-down loan than a loan where you put anything down.
Private Mortgage Insurance. If you put nothing down on a conventional loan, you'll have to pay for private mortgage insurance. Actually, you'll pay this for any down payment less than 20%, but the less you put down, the more the PMI, and the longer you have to pay it.
So I encourage you to put down at least 5% if you can. I'm not saying that you should never pursue a zero-down loan, but if you get one just make sure you can afford it!
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If you can afford to put 20% down, you should. You'll get a better interest rate, won't have to pay for Private Mortgage Insurance, will qualify for a larger loan, and will save a bundle on interest.

Please feel free to call or email me anytime.

Mike O'Donnell
615-473-5684
Tema@comcast.net
realtormurfreesboro.com

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