For many homebuyers, having enough money for down payment is one major obstacle to buying a property. Down payment is the amount you give when you buy a home that you do not get back until you sell the house. While there are no set rules for the size of the payment, you need to be familiar with the basic guidelines and certain financial considerations.
The Standard Down Payment
If you want a low rate for your mortgage, you need to make a down payment 20% of the home purchase price. Salt Lake City home loan companies that this is the standard amount when purchasing a home, which will allow you to avoid private mortgage (PMI). This is a continuously monthly fee that helps insure loss for a mortgage default given to lenders by insurance companies.
Less Than 20% Payment
While 20% is the standard down payment, there are loan programs that will enable you to buy a home with little to no down payment. With less than 20%, the lender may require you to purchase a PMI or charge a higher interest rate. Both will increase your mortgage cost. You can buy a house with less than 20% down payment through conventional and government-backed mortgage programs.
Using a Gift for Down Payment
Some borrowers use a gift from their relatives or domestic partners to pay some or part of the down payment. There are some rules and procedures, however, that the lender may require you to follow when choosing this method. The giver will need to provide a letter to show proof of gift and to confirm that the provided funds are not borrowed. The giver should also verify that you don’t need to repay the gift.
You can buy a home with little to no down payment, but it is best to save for more money. This is to avoid PMI or high interest rates. It is also a good idea to pay off your debts, especially those with high interest rates. Paying debt will not just improve your ability to qualify for a loan, but also makes it easier for you to save money for a down payment.