Do first time home buyers need a down payment on a house?

Majority of the first time home buyers believe that they must save sufficient money to at least cover 20% of their down payment on a house. This can be very challenging for most buyers, and luckily, first time home buyers can invest in their own house with as less as 3% of their down payment.

In some cases, buyers can event without even paying no down payment on a house. In this article, we will walk you through the basics of down payment, and understanding the advantages and drawbacks of paying greater upfront costs, alongside exploring other options available to you.

Understanding Down Payments

Modern-day first time home buyers can access a wide range of mortgage products and low down payment opportunities. If you can qualify to receive a mortgage, you can also choose a mortgage plan that comes with a lower down payment.

However, it is important to note that such opportunities are only available to first time home buyers with a healthy credit history. Also, even if you manage to escape the down payment, you will find yourself paying more to pay off your loan.

Paying more upfront costs will reduce your mortgage balance and vice versa. Moreover, first time home buyers who do not pay 20% down payment on a house typically end up paying private mortgage insurance.

What is Private Mortgage Insurance?

Private mortgage insurance is insurance that provides financial protection to your lender in case you are unable to pay off your home loam.

In terms of convention loans, the insurance payment becomes a part of your monthly payments, however, the loans provided by the US Department of Agriculture, Veterans Affairs and the Federal Housing Administration address mortgage insurance in a different manner.

It is important to note that the lesser your down payment on a house, the greater you have to pay for your mortgage insurance.

If you are willing to make a 5% down payment, your mortgage insurance will be exuberantly high. The private mortgage insurance payments will be determined by your credit score and the amount you are willing to pay in your down payment.

A Financial Strategy

You see, obtaining a loan is not the problem as the limiting factor is always the private mortgage insurance.

First time home buyers are strongly advised to strive to make a larger down payment so they can avoid paying the private mortgage insurance, which typically lasts throughout the lifetime of the loan.

Whether you can pay a substantial down payment on the house depends largely your personal and financial circumstances. Aside from the down payment, first time home buyers need to arrange sufficient cash in hand that will be required to pay off repairs and closing costs, alongside paying realtors, appraisers and the inspection team.

Remember, there is no set pattern of rules and regulations as every home buyer must plan out the strategy in light of his/her financial circumstances. A large down payment will help you reduce your overall costs in the long run.

Denise Davis

Realtor/Credit Repair Specialist

If you find yourself needing help with credit repair or have questions about the home buying process contact me or schedule a free consultation.


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