How Much Should My Down Payment Be on My Mortgage?
Posted on | March 5, 2009 | No Comments
It wasn’t that long ago that you had to fulfill 20% of a mortgage loan with a down payment. If you wanted to buy a $200,000 home, you must pay $40,000 up front before the home was yours. This is not the case today as the Federal Housing Authority (FHA) has lowered the down payment percentage to 3.5%. It was actually just increased from 3% to 3.5% but is still amazingly low when compared to history.
While down payments decreased, the debt-to-income ratios for borrowers began to increase. It was not unheard of, in the early 2000′s, for a mortgage to be signed with a debt-to-income ratio of 45%; meaning that a family is spending 45% of their gross monthly income on their mortgage.
The Veterans Administration has always offered qualified veterans zero down payment loans. The drawback is that the mortgage loan is very expensive. Conventional lenders began to offer zero down payment loans to ordinary home buyers in the late 1990′s. During the housing bubble, there were very few restrictions to these types of loans. Things have changed greatly as the mortgage crisis has put many lenders under. It is unlikely that you will be able to find a reputable zero down payment loan in today’s economy. Most lenders know how risky this can be and are not willing to take that risk.
If you are able to find a zero down payment loan in today’s economy, it is not likely that that financial institution will survive the recession. Every single responsible lender is forcing borrowers to put money down to reduce the risk of default. To avoid private mortgage insurance (PMI), you will need a down payment of at least 20 percent. It is strongly suggested to come up with at least this much in the current economic environment. Your job as a borrower is to prove to the lender that you are going to pay your mortgage and do so in a timely manner. There is no better way to do this than to have a great credit score and a down payment of 20% or more.
When buying a home, it is advisable to underbuy rather than overbuy. If you underbuy, you will not be constrained financially giving you the opportunity to be more flexible. If you overbuy, you are likely to be greatly restricted in your financial decisions because your mortgage takes up so much of your income. Especially in today’s housing market, there is no fault in underbuying.
- Home Buying
- Final Walk-Through Should Be Scheduled AFTER The Seller Has Moved Out
- Is It Better to Buy a New Home or an Existing Home?
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