When it comes to buying a home, it's likely that you've heard over and over again that you need to determine what you actually need in a home as opposed to features you want. While this may make sense on paper, once you have to actually apply it to your home buying experience, it can be a little more difficult. Luckily, The Home Buyers Inc. in Minnesota has you covered. We've created this guide to give you a little more insight on how to determine what is a want versus what is a need. Continue reading below to learn more, and once you're ready to start the house hunting process, reach out to our team of exclusive buyers agents to get started!
Down payments: What You Need To Know
What Is A Down Payment?
Many people cannot pay all cash for a home in the Minneapolis–Saint Paul area, but that doesn’t mean you are not destined to live here! Typically, buyers use a combination of a down payment and a loan to purchase a home. But what exactly is a down payment? A down payment is the lump sum of cash that you are putting towards the purchase of your new house and is usually shown as a percentage of the purchase price. For example, when applying for a mortgage loan on a $250,000 property, if you are putting a down 10% down payment, you are paying $25,000 towards the purchase of your home with cash or a cashier’s check. While most lenders require some type of down payment for initial ownership investments, many federal government loans do not.
Do You Really Need To Put Down 20% When Buying A Home
Maybe you have heard of the “Golden Rule” when it comes to buying a home that you are supposed to put down a 20% down payment towards your purchase price. While this is the requirement for some types of loans, it is not the standard across the board. In fact, according to the National Association of Realtors, the average down payment amount for first-time home buyers was right around 7%.
Types Of Mortgages
As discussed above, the required amount of down payment varies depending on the type of loan you receive. Don’t let your lender fool you; there is much more out there than a conventional loan. Let’s take a look:
0% Down Payment Mortgages:
- VA Loans
USDA Loans
As Low As 3% Down Payment Mortgages:
Fannie Mae and Freddie Mac
As Low As 3.5 % Down Payment Mortgages:
FHA Loans
As Low As 10% Down Payment Mortgages:
These are loans outside the Federal Housing Finance Agency's loan limits that are not backed by government-sponsored enterprises and may require a higher down payment amount.
Even with a lower down payment amount, depending on the conditions of your loan you may be subject to additional fees and interest charges, such as private mortgage insurance (PMI). Always talk with your lender and fully disclose any concerns you may have.
Other Considerations
While prospective homeowners may be willing to do anything to get the right amount for their down payment, here are some additional considerations and tips from The Home Buyers to keep in mind:
Don’t drain your entire savings for a down payment
Keep closing costs in mind. These are typically two to five percent of the purchase price.
Plan for additional home-owning costs (new appliances, renovations, moving expenses, etc.)
Shop around and compare mortgage rates from different lenders
Are you ready to begin your home buying journey in the Twin Cities? Let the expert agents at The Home Buyers help you uncover the true value of prospective homes across the area, while putting your needs first to secure the home of your dreams. We can guarantee you 100% representation in your home purchase, since we never work with sellers, only the buyers. Contact us today to get started!