Saving for a down payment is one of the first steps to home ownership. Without a down payment, it’s nearly impossible to qualify for a home mortgage. If you are considering the purchase of a home, read these 5 common questions regarding down payments. The more you understand about what goes into your down payment, the better equipped you will be to meet with a mortgage lender.
Why do lenders require a down payment?
Lenders require a down payment as protection for the bank or lender, should the borrower default on the loan. The down payment reduces the amount the lender must raise through the sale of the property if the borrower defaults.
What does my Mortgage Payment consist of?
Your mortgage payment consists of principal, interest, private mortgage insurance and escrows. You can avoid private mortgage insurance if you put a 20% down payment on your home. You can also pay your escrows separately if you put the 20% down payment on the home. Escrows consist of property taxes and homeowners insurance.
How is the required down payment calculated?
Depending on what kind of mortgage loan you are applying for, it would be 3.5% of the sales price (FHA) or 5% of the sales price (conventional). There are two programs that will help reduce the down payment on a conventional loan to 3% of the sales price. To apply for these programs, it must be a single-family home and must be your primary residence.
If I can, should I make a larger down payment than the one required?
Yes. Making a larger down payment would help you overall. It can help with your interest rate and with avoiding private mortgage insurance.
What is private mortgage insurance?
Private mortgage insurance, or PMI, is a mortgage insurance that is required on a conventional loan or FHA loan if the borrower does not meet the 20% down payment. Mortgage insurance protects the lender if the borrower defaults on the loan.
Home Mortgage at FirstBank Southwest
Our team of experts are here to you through the process of applying for a home mortgage. If you have questions, give us a call at 806.355.9661. You can also stop by your nearest branch to speak to a loan officer today.