Understanding Down Payments On Your First Home

American Investment Planners LLC

500 North Broadway, Suite 260, Jericho, NY 11753

(516) 932-5130 / (866) 932-5130

Although we wish it were, saving up to buy a house isn't as easy as working towards having enough money to just pay the mortgage each month - there are various other upfront costs that need to be saved for too, such as the down payment. 

What is your down payment?

Unlike closing costs that are separate fees, your down payment is a percentage of the total cost of the home - that means that what you put down directly effects how much money you wind up borrowing from the lender. As you may have guessed, the more you put down the less you borrow, which likely means a lower mortgage payment for you.

So how much should you save?

Typically you'll need at least 3%, so whatever you expect your budget to be, use 3% of that number as a good starting point. For FHA loans, expect to put at least 3.5% down. However, although these are pretty standard, a lot weighs on your credit - your minimum down payment could be 5%, 10%, or even more than 20%, depending.

What is PMI?

As you start talking with lenders and sellers, a term you'll hear is PMI, which stands for private mortgage insurance. This is an additional cost that is added and results from putting down less than 20% of the home's purchase price. That said, if you want your monthly mortgage payment to be as low as possible, you should aim for having 20% of your budget saved up for a down payment to avoid this extra monthly expense. 

Bonus tip: Although PMI is normally paid each month, some insurers will give you the option to pay an upfront premium when the loan starts. So, if you plan to put less than 20% down, see if you can save a little extra to cover the PMI cost at the beginning.

Does my down payment influence my interest rate?

The amount of money you put down could have an impact on the interest rate you're given for a loan - for example, a higher down payment could result in a lower interest rate. However, like many things in the financial world, this too could vary depending on who you work with and other factors such as your credit.

Are you thinking of purchasing your first home soon? If you're hoping to become a homeowner but haven't gone through the process of buying before, it's important to understand as much as you can about down payments, closing costs and more before you jump into making any decisions. 

To learn more about topics like these, or if you have specific questions that you'd like answered, please contact the American Investment Planners LLC team at (516) 932-5130. Our advisors are not only trained to help, but they've also gone through similar experiences, so they are the perfect resource!