Buying a home can be a scary proposition. There’s a lot of information—and misinformation—out there, and it’s sometimes hard to separate fact from fiction. For those looking to purchase a home, here are a few common myths—along with the corresponding truths—surrounding home loan down payments.
Myth #1: There is an “average” down payment every homebuyer must make.
The truth is, no official statistics exist surrounding average down payments on a home. Traditionally, down payments have fallen somewhere in the 10- to 20-percent range, but that amount fluctuates depending on a wide range of factors, including a borrower’s credit score and borrowing history, the lender’s standard operating procedure, the current housing market and even the house itself. A down payment amount also might change if the borrower is eligible for a specific loan option, like a VA or FHA loan.
Our agents at 123 My New Home will help you find the best home loan programs so your down payment amount is the lowest it needs to be.
Myth #2: It’s best to avoid Private Mortgage Insurance at all costs.
Private Mortgage Insurance, or PMI, is an insurance program that offers lenders a less-risky way to provide loans to borrowers who make lower down payments (less than 20 percent). PMI has gotten a bit of a bad rap in recent years in the wake of the 2007 housing market crash in the U.S., but in reality it allows many borrowers to make a home purchase sooner, since it requires them to save up less money.
For example, a 20 percent down payment on a $300,000 mortgage comes out to $60,000—a daunting figure for many would-be homeowners. But PMI would allow the borrower to purchase the home with a lower down payment of 3 to 19.99 percent. In short, adding PMI to a mortgage often makes the purchase of a home a much more realistic proposition for many buyers.
Myth #3: A down payment will be your only up-front cost.
Contrary to what many new homebuyers believe, a down payment on a mortgage is unlikely to be your sole home-buying expense. During the buying process, expect to be hit with fees for things like a professional home inspection, closing costs and realtor commissions. And of course, once the home is yours, you’ll be responsible for any maintenance costs, renovation expenses or upgrades.
As soon as you decide home ownership is the right path for you, start setting aside cash to help foot the bill for these expenditures. As a homebuyer—and, later, homeowner—it’s best to be prepared for financial surprises.
Myth #4: The only way to reach your full down payment is to save, save, save.
Saving up for a down payment can seem like an overwhelming proposition, but there are numerous programs out there to help homebuyers make solid down payments and secure a mortgage. As mentioned above, there are FHA and VA loans, as well as programs for first-time homebuyers or those with excellent credit scores. Just do your research, and be sure to check out our list of affordable loan options.
The path to home ownership can be a circuitous one, but asking the right questions and doing your own independent research can go a long way toward securing the right mortgage for you—and owning the home of your dreams.
And if you have reached a roadblock with your independent research, 123 My New Home is here to help. Our expert knowledge of the home buying process is at your disposal when you get connected with one of our agents.