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The Mortgage Downpayment

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Transcript: The Mortgage Downpayment

When purchasing a home, you’ll be required to make a cash down payment usually between 3 and 20 percent of the home’s full purchase price. How much money to put down on your new home is an important decision. And there are several factors and benefits to consider, so DCU wants to help you better understand your options.

While a down payment can represent a significant amount of money, there are advantages to making a larger one:

Number one: If you can make a down payment of 20% or more, you can avoid the cost of private mortgage insurance, or P-M-I.

PMI stands for “Private Mortgage Insurance and is required if the down payment is less than 20% of the home’s value. This insurance coverage protects the lender if you default on the loan. The monthly premium amount is added to your monthly loan payment. Some lenders may offer lender paid mortgage insurance options.

Number two: when you can make a larger down payment, it reduces the amount you’re borrowing, which lowers your monthly payment.

And three, you’ll pay less interest over the life of your loan because you’ll be borrowing less money. While a larger down payment has advantages, options are available for down payments as little as 3 to 5%. And making a smaller down payment can have its advantages as well.

First, it means that you’ll need less money out of pocket when you purchase the home, this will allow you to allocate other funds you have for closing costs, an emergency fund, or maybe some updates you plan to make to your new home.

Second, monthly PMI premiums vary depending on your loan scenario. The closer your loan value is to 80%, the lower the monthly PMI amount. And some loan programs may have lender paid PMI options.

Review your options using our personalized quote tool online, or speak with a loan officer for more information.

And finally, putting down less money may allow you to purchase as a home sooner. Saving funds for your home purchase takes time and a loan with a lower down payment can give you flexibility for the time of your home purchase.

Next, it’s important to understand you have options for the source of your down payment.

The money can come from your own savings, but it can also come from other sources like a gift from a relative or a grant from your city or state.

Of course, there are other costs to consider when deciding on the down payment amount that’s best for you.

First, you’ll want to factor in closing costs, which could be a few thousand dollars, and be sure to keep some “move–in” money for things like painting, new furniture or maybe a new appliance.

So, to sum up, a larger down payment can help you avoid the costs of private mortgage insurance, reduce the amount you need to borrow, and save you interest costs over the life of the loan.

While a smaller down payment can mean less money out of pocket, give you more options with PMI and allow you to purchase a home sooner. Determining how much home you can afford to buy is another important factor when deciding how much money you should have for a down payment.

Check out our DCU video: “How Much Home Can You Afford?” to help you determine what price range of homes you should include in your home search. DCU’s personalized quote tool can provide you with the rate, payment option and cost details for multiple scenarios.

Remember: DCU is always here for you to discuss options, answer questions and provide a choice of great mortgages. For more information, call one eight hundred three two eight eight seven nine seven, go to DCU dot org backslash mortgage, or a DCU branch.