This articles discusses Down payment: everything you need to know.
If you plan on taking out a mortgage to buy your new home in greater Atlanta — be it Cobb County, DeKalb County or any spot in the area — you’ll also need to have some money set aside for a down payment. The exact amount you’ll put down depends on the cost of the house, your budget and the type of mortgage you receive. Typically, the more you can pay upfront, the better the interest rate you’ll get and the less you’ll have to pay each month.
Understanding the options
A down payment of 20 percent of the price of the house is traditional. That means if you want to purchase a $300,000 home, you need to save up $60,000 first. While a lender might hope for 20 percent down, not having that much saved doesn’t mean you can’t buy a house. A lender might also give you a mortgage if you are able to put between 5 percent and 10 percent down. A good credit score increases the chances that a lender will permit a lower down payment.
Lower down payments
Putting a smaller amount down can mean that you spend more money on the mortgage over time, as you’ll borrow a higher amount and pay a higher interest rate. A payment of 5 percent or 10 percent also means that the lender adds on private mortgage insurance (PMI), which protects the lender if you stop making payments.
You are responsible for making the premium payments, which are a small percentage of the original loan value. You won’t have to pay the premiums for the life of the loan, though. Once you’ve paid 20 percent of the value of the home, you no longer have to pay for the insurance.
Depending on your situation and the amount you put down, you might qualify for a Federal Housing Administration (FHA) loan, which is guaranteed by the federal government. If you qualify, you can put down as little as 3.5 percent, but you also have to pay an upfront insurance premium of 1.75 percent plus a yearly premium of 1.35 percent of the loan’s value.
Not putting all the money you’ve saved into your upfront payment can be a good thing. If you set make a smaller down payment, you’ll have some money set aside for emergencies.
How to save the money
Saving up enough money for a down payment is the big barrier for plenty of people, but it isn’t impossible. Find ways to trim your monthly expenses and put the extra money in a savings account. For example, shop around for a cheaper cell phone plan or move to a smaller, less expensive apartment to save on your rent. Limit your spending to essentials only, like brown bagging it to work for lunch while saving and consider getting a part-time job.
The more you put down on a house, the closer you are to fully owning it. But, don’t let a smaller down payment get in the way of your dreams of home ownership.
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