House Down Payment and its Types: A Concise Guide

Purchasing a house is not about driving on a Sunday afternoon, visiting random open houses that fall on your way, and finalizing a deal with the owner. Rather, it is about putting your finances in order and ensuring you have enough down payment. In the case of people looking for VA approved lenders, or seeking a USDA home loan program, the scene is different--no down payment. There are others, however, who depend on conventional and other loans when it comes to mortgaging a house. This article focuses on downpayment and how much of it you may need while buying your new house.

Understanding Down Payment
Anything that goes out of your pocket, which you do not or are unable to finance as a loan is your down payment. It is important to not confuse this amount with earnest money deposit or EMD, which most starters do. The reason, earnest money deposit is the amount required to secure your home’s purchase contract. It is only a part of your down payment that reflects your good intentions towards mortgage. Consequently, this amount is, usually, at risk when you default your payment.

Exploring Down Payment Types
How much downpayment you are required to pay to your lender depends on the type of your mortgage loan. These days, 80/20 combo loans and liar loans are hard to find, as lenders are more focused on closely scrutinizing your borrowing ability before landing into a deal. To be in a safer position, they want you to pay a good amount of down payment. Still many minimum down payment options exist:

VA Loans Down Payment
Designed for American veterans to help their dream of owning a house, va loans give you the option of zero down payment. The rate of interest is lower than conventional loans, but there is a funding fee involved that varies from 2.5 to 3.3%.

FHA Loan Down payment
Most conventional loans come with a fixed-rate mortgage, meaning your monthly payment or installment remains fixed and does not change as per the rate of interest. Though lenders do not finance 100% of your house loan, a good FICO score may get you a loan for up to 95% of house’s value.

Conventional Loan Down payment
A part of the American mortgage system since 1934, FHA loans, usually, carry a down payment of 3.5%. They may also accompany a mortgage insurance premium into the loan.

Things to Remember:

• Most lenders do not offer 100% financing, as they want borrowers to have some skin in the contract
• Home buyers have to bear other out-of-pocket expenses apart from down payment such as closing costs
• Closing costs are fees charged by lenders and third parties at the time of closing mortgage
• In most cases, buyers have to pay for closing costs, except a few such as VA loans where the lenders bear a portion of it

Conclusion
Going the conventional way, it is always better to pay as much down payment as you can. However, do not do the mistake of wiping out your savings account completely, and save some for the rainy days too. If you do not understand the intricacies of any mortgage type or do not have time to do so, better take the help of a loan officer. Tied to banks, credit unions and other financial institutions, loan officers have both the expertise and knowledge to help you choose the right mortgage plan that works best for you and your family.