What about a Home Loan Down Payment?

The Down Payment Hurdle

For most first-time home buyers, saving enough money for a down payment is the biggest hurdle to owning a little piece of paradise. Traditionally, lenders have required a down payment of at least 20% of the home's purchase price. However, lenders will now accept less than that if the borrower takes out private mortgage insurance. (In the last few years, innovative programs have made it possible to put down anywhere from 0% to 3% of the value of a home and still qualify for a mortgage. We'll talk later about those special programs.) Maple Tree Funding Loan Officers can discuss with you in more detail.

Should you put down less than 20%? Well, if you've got the money, there are advantages to putting 20% down. For one thing, you immediately have substantial equity in your home. This may be important to you psychologically, and that counts. In addition, you'll avoid having to pay private mortgage insurance.

If you haven't got the money, here are some other options...

Private Mortgage Insurance (PMI)

Private mortgage insurance protects a lender in the event that you default on the loan. Lenders generally require mortgage insurance on loans with low down payments because experience shows that a borrower with less than 20% invested in a house is more likely to default on a mortgage.

Mortgage insurance also enables lenders to grant loans that would otherwise be considered too risky to be purchased by third-party investors like the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac). The ability to have a market for the mortgages means that lenders can loan more money to people like you.

The good news about insurance is that you don't have to pay it forever. You can usually cancel it after you have at least 20% equity in the home. Maple Tree Funding Loan Officers can assist you with any questions you may have about PMI and how long you will have to pay for it.

How Much of a Down Payment Should You Make?

Your decision will be dictated by your financial condition, the loan you can get, and your preferences. If you're financially secure, you may want to go ahead and put down the 20%. On the other hand, you may figure that, putting down as little as possible , you'll have that much more to invest. Then, if you know what you're doing and have a sufficiently long time horizon, your money will be earning more for you than if you had tied it up in your home. Our loan officers will be glad to review all your options including an 80/20 loan which avoids PMI by having two loans for one property. These are very common loans also referred to as "Piggy-Back" loans. Either zip us an email (see home page) or call us at 518-782-1202 and we can explain this to you in more detail.