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It is common home buying knowledge that when you purchase a home, you will be putting a down payment on it. A down payment is a payment made in cash that is a percentage of the total home cost. This percentage is typically 20%, though it can vary based on your circumstances and loan program.

Here’s what you should know about what determines your down payment:

Amount Of Cash Available To You

Have you been saving up? How much cash you have available on hand will limit how much of a down payment you can make. For example, if you only have $10,000 available for a down payment, and the home you want to buy is $140,000, then you will want to save up some more in order to meet minimum requirements. To figure out how much you will need to save up for in a down payment, simply find out what your home price range is and calculate a standard 20% down payment just to be safe.

The Price Of The Home

The price of the home will also be a (if not the) deciding factor on how much your down payment will be, as well as how high or low of a percentage of that price you can put down on it. For example, if you purchase a home for $150,000 and put down a standard 20% loan, then you put down $30,000 on the home. Since you put down $30,000 in cash on the home, you would have to borrow for around $120,000.

Your Mortgage Program & Credit Score

Your credit score and the type of mortgage program you choose to use will go a long way in deciding your down payment. There are some loan programs that will allow you to pay a low down payment (or none at all), and the lending program you choose will often have a minimum down payment based on your credit score. For example, if you have an FHA loan, the minimum down payment is 3.5% if your FICO score is 580 or higher.

Your Down Payment Will Affect Your Mortgage Rates

Remember: Whatever you decide to put down on a home, that down payment will affect your monthly mortgage rates. For example, the higher your down payment:

  • The lower your interest rate
  • No PMI
  • Lower monthly payments

When deciding how much to put down on a home, consult with your financial advisor and loan officer. They will help guide you through the process and give you the information you need to know.

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