First-Time Home Buyer’s Guide: How To Choose And Make A Down Payment


Buying Your First Home: The Down Payment

Choose And Make A Down Payment. NSH Mortgage has the knowledge and tools to help you choose and create an effective down payment towards your goals. First-time home buyers face more hurdles than repeat buyers.

A first-time home buyer may have less savings. They might have a collection of student loans and other large debts or perhaps the buyers are just starting a career. And of course, first-timers have little or zero buying experience and many first-time buyers are about to start living on their own for their very first time.


First-Timers Buy One-Third Of Homes

According to the National Association of REALTORS®, first-time home buyers account for one in three homes sold nationwide. This is the lowest rate in close to 30 years. However, with mortgage rates on the low and an abundance of low and no down payment mortgages becoming available from mortgage lenders, there has never been a simpler time to get approved for your very first home loan.


What Is A Down Payment?

If you cannot or do not want to buy a house with cash, you need financing a mortgage. Sometimes, a bank will lend you the entire amount you need to buy a home, this is also known as 100% financing. Although, most mortgages require several contributions from the borrower.

If you purchase a home for $100,000 and borrow $90,000 (90%), you would put $10,000 (10%) down on the house.


Choose Your Loan Amount

As a home buyer, the size of your down payment is up to you. You can put up 20 percent or more, or you can skip the down payment altogether. Each choice has its benefits.

For example, when you put more money down, you borrow less money from your lender. That reduces your monthly mortgage payment. You may also get access to lower mortgage rates.

When you make a small down payment, you keep more cash in your savings account for life’s emergencies. It also means that you can buy a home today instead of waiting eight years to save for a down payment.


How Much Down Payment Is Required To Buy A Home?

As a first-time home buyer, you have access to a wide range of mortgage loans and mortgage loans can be customized to meet your needs. Your loan amount is one of your choices. The down payment can be as large as you wish, or as small, so long as you make the minimum investment required by your lender.

The five most common low and no down payment mortgages used by first-time home buyers are the FHA loan, the VA loan, the USDA loan, the Conventional 97, and the HomeReady™ mortgage.


The FHA Loan

FHA loans require a down payment of 3.5% of a home’s purchase price, at minimum. These products are popular with first-time home buyers because the program allows below average credit scores. FHA mortgage approval standards are considered to be the most friendly toward first-time buyers.


The VA Loan

VA loans are available to members of the U.S. military and veterans of the Armed Services. These mortgages provide a 100% financing option, and VA mortgage rates are often lower than those of other programs.


The USDA Loan

Rural Housing or USDA loans also allow 100% financing. The program is available for homes in rural areas and less dense suburban neighborhoods nationwide. USDA mortgage rates are often as low as VA mortgage rates.


The Conventional 97

The Conventional 97 is available to home-buyers with above average credit scores. A Conventional 97 loan allows buyers to receive cash gifts for their down payment, which is only 3%. This program has a loan size limit of $424,100.


The HomeReady™ Mortgage

The HomeReady™ mortgage is another 3% down program. This program is geared toward multi generational households, but all home buyers are welcome to apply. Home buyers using HomeReady™ get access to discounted mortgage rates, and can use the income of boarders and other household residents to help get mortgage qualified.


Down Payment Assistance Programs

First-time home buyers often cite making a down payment as a primary obstacle to home-ownership. However, besides an abundance of low and no down payment mortgages, first-time buyers have access to down payment assistance programs (DPAs), many of which grant money instead of requiring repayment. And these programs are widely available.

According to a study from housing data company RealtyTrac, there are 78 million single family homes in the United States, including condominiums. About 68 million, or 87% of these homes potentially qualify for down payment assistance. As a first-time buyer, therefore, you can use down payment assistance programs to help reduce your cash required at closing and to reduce your monthly mortgage payment.

Strangely, less than ten percent of home buyers even apply for down payment assistance. Home buyers often do not apply for such programs because they are unaware that the down payment assistance programs exist, they do not believe they will qualify, or they plain do not know where to get access. To find out for which assistance programs you may be eligible, talk to your mortgage lender.

Most banks have applications on hand for down payment assistance programs, or can point you to a website. The average down payment assistance amounts to $11,565.

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