A Brief Down-Payment Guide for First-Time Homebuyers

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A Brief Down-Payment Guide for First-Time Homebuyers

Putting a down payment on a house is a big life step; it requires taking on a significant financial burden and uproots your life as you prepare to take up residence elsewhere. If you’re a renter, it can feel overwhelming to try to figure out the whole home buying process. If you find yourself browsing the homes for sale in Bucks County or the surrounding area, it may seem like a new home is out of reach, but the reality may be that you’re closer than you think.

Here’s a brief guide to putting a down payment on your first home.

Do I Need 20 Percent of the List Price?

Many people assume that they can’t afford a house unless they have 20 percent of the home’s value as a down payment, but this isn’t always the case.

It’s beneficial to put 20 percent of a house’s value into a down payment for a couple of reasons: it shows the mortgage lender that you’re a safer investment, and having a 20 percent down payment saves money in the long run.

Having less than 20 percent for a down payment on your new home will generally lead to three outcomes:

  • The mortgage lender can take the fact that you have so little to put down as an implication that you are someone who may default on your mortgage and give you a higher interest rate.
  • You would need to pay for mortgage insurance, which exists to cover costs for the mortgage in the event you default.
  • You have to take out more money to pay for your home, meaning higher mortgage payments and more interest over your loan.

If You Don’t Have 20 Percent

While it may be easier to afford a new home with a 20 percent down payment, some programs may make it easier to put less down for your home without necessarily paying more.

First-time buyers, for example, are eligible for an FHA mortgage, which allows you to put practically nothing down. It still requires private mortgage insurance, but it could be an option if you’re buying your first home and looking forward to leaving apartments behind you.

What if I’m Not a First-Time Buyer?

If you’re not a first time buyer, then other programs can help with putting together a down payment for your new home. There are state and local programs designed to stimulate the economy, which could help get a down payment together, as well.

Depending on where you’re looking to buy, the USDA also awards grants to individuals looking to buy a property in designated areas of the U.S., usually with little or no down payment and generally with no mandated private mortgage insurance.

If you’re a veteran, there are even more options, as the VA offers quality loans to veterans to purchase housing. These mortgages usually don’t have restrictions on the value of the home, the creditworthiness of the borrower, and don’t mandate private mortgage insurance.

As you begin to look for your next place to call “home,” questions may arise about how much down payment is necessary, what the timeline might be like, or how to choose the right neighborhood for your situation. When questions like these arise, our Bucks County real estate agents have the knowledge and expertise to help you through the process. Give The Joseph Bograd Real Estate Team a call today to get started.

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