Downpayment - How Much is Needed?

When buying a home you may be required to make a down payment depending on numerous factors, such as your credit score, your debt to income ratio, your employment information, the amount of money you have in reserves and various other factors. Consult with a mortgage professional to see how much of a down payment you would need to come up with to buy a home. You may even be able to buy a home without making a down payment at all. This is often referred to as 100% financing. Many homeowners buy their homes without a down payment so that they can save their cash for other things or for emergencies.

Your Down payment will depend on:

-If your seller is going to help contribute to the purchase of your home.
-If you qualify for a 100% LTV mortgage
-Your credit score
-Length of employment

In determining how much of a downpayment is needed consider your risk tolerance. If a low downpayment is made then potentially you could have problems if the value of your home declines. With a larger down payment you can sleep soundly knowing you have enough of a cushion to protect against any downturn.

It is also important to have some savings to fall back on after you close on a home. You may be better off with a smaller down payment with some savings for unexpected expenses or necessary repairs and updates. For each additional $1000 put down on a home, the monthly payment reduction is generally less than $7.

Many times you can qualify for better financing terms if your have 2 months mortgage payments in reserves after closing. This shows savings for unexpected circumstances and reduces the risk associated with a loan.

A popular source of down payment for First Time Home Buyer's is a gift from family. Not only does the down payment make the loan less risky to the lender, the buyer's payment is often reduced to a manageable level as well.

The amount of down payment required in relation to house price changes with economic conditions. During times of market contraction and credit crunch, banks tend to set higher downpayment requirements.

While mortgages are still available with no downpayment or as little as 3% downpayment for qualified borrowers seeking mortgages of $417,000 or less, borrowing more than this will require a downpayment o 5% to 20% depending on your credit score and ability to document income.

» DISCLAIMER: The information contained in this article on 'Downpayment - How Much is Needed?' is a collection of contributions by licensed mortgage professionals and is not the opinion of Broker Outpost LLC. Always consult a licensed professional before applying for a mortgage.