NMLS: 337919

CA BRE: 01454300

Down payments are important—
you have options.

Low Down Payment Purchase Options

For many people who are considering buying a home, how much money to use as a down payment can be very confusing.

 

The best route depends on your situation and personal preference. Below are  four issues that all home buyers and investors should explore when considering a down payment:

 

 

Please consider the information below an opportunity to explore your many options. By no means is this designed to steer you toward any particular program—instead the hope is to expose you to the options you may wish to consider when purchasing a home or investment property.

 

Down Payment Options

Conforming loans will require certain minimum downpayments, as will some of the available alternatives with non-conventional (FHA loans) programs.

 

As an example, you can purchase a single-family home or condominium with as little as 3.5% down—but there is most certainly a cost associated with lower down payments. In many cases, mortgage insurance (often called PMI, private mortgage insurance) will be required.

 

PMI is required when the conforming loan amount is MORE than 80% of the purchase price (in other words, when your down payment is less than 20%). Generally speaking, the lower the down payment, the higher the premium ratio.

 

Veterans of the U.S. Armed Services who qualify for a VA loan have the easiest route to buying a home with little money down. VA loans can provide up to 100% financing for qualified military personnel and veterans.

 

There are some non-conforming mortgage loan programs that allow for 80/20 options, allowing borrowers to obtain a second mortgage to cover their 20% down payment.

 

Regardless of your credit and income situation, you have some options to purchase a home with no money down.

 

Cost of a Lower Down Payment

Putting less than 20% or utilizing a zero dollar down payment program will generally have two primary costs:

 

  • Higher interest rates
  • Higher mortgage insurance premiums

 

Whether you are using a conforming loan or a non-conforming program, if you choose a small down payment, you will need to pay higher interest rates and mortgage insurance.

 

Mortgage insurance is calculated against the loan amount. Lower down payment means a higher loan amount and a higher mortgage insurance rate.

 

Mortgage insurance may be removed once you have earned sufficient equity. Generally your property will need to show at least 20% equity—in which case, your mortgage insurance can be refinanced away.

 

Also, lower down payments generally means a higher loan amount, which translates into higher monthly payments.

 

Consider, for example, the purchase of a $100,000 home with 6.5% interest:

 

  • 5% down, $95,000 loan and a monthly payment of $600.46
  • 10% down, $90,000 loan and a monthly payment of $568.86
  • In this case, putting down an additional $5,000 will save you $32 per month

 

During the first few years of your mortgage, the bulk of your payments go directly to pay the interest. You can generally deduct interest payments from your taxes—so you actually get a bit of your monthly payments back at the end of the year in the form of tax deductions.

 

Benefits of Lower Down Payments

The benefits of a lower down payment include:

 

  • Less money out of pocket means higher liquidity
  • Potential higher rate of return. A property's appreciation has nothing to do with the amount of money you put down.
  • Opportunity cost. Some investors make more money from available cash by diversifying their investments. (Use caution).

 

Personal Consideration

Deciding how much money to put down on a home is a big decision and should involve conserderable thought. Calculations based on monthly payments, affordability and overall goals are crucial. Lenders will qualify you for certain programs based on your credit score and income, but at the end of the day, you need to understand what you are commiting to and be comfortable with it. LifeSource is glad to help you understand all of your options.

 

In some cases, home buyers are qualified for a mortgage that is higher than they are comfortable paying. The best way to satisfy this is to increase the amount of money down to then decrease the amount you pay per month. That, or find a less expensive property. Again, LifeSource Mortgage representatives are experts in working with buyers to find the program that best fits their needs.

 

Working with LifeSource Mortgage

  • Exceptional Personalized Service—As a small, independent, family mortgage company, we care about our clients and our reputation. Serving you is our priority.
  • The Best Mortgage Rates—We have the ability to shop interest rates from several lenders. Doing so gives our clients the best rate for their mortgage.
  • Increased Chance of Approval—Combining the service of our knowledgeable loan officers with our access to several lenders gives us the ability to find the lender who will offer the highest probability for your home loan approval!

 

Give us the opportunity to earn your trust and prove why we're the best in California!

 

MORTGAGE CALCULATOR

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Contact Us

Office: (949) 492-2252

Cell: (949) 274-1907

Email: info@LifeSourceMortgage.com

 

Orange County Office

1238 Puerta del Sol, Suite 2E

San Clemente, CA 92673

 

LifeSource Is Your
California Mortgage & Refinance Specialist

Real Estate Broker, California Bureau of Real Estate, License #01869699, NMLS #321759

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