What Is Down Payment? All About the Down Payment for Your First House
Around 2 million people become first-time home buyers each year. It’s an exciting time full of possibilities during this new adventure of getting out on your own. But it can also be full of a lot of stress and overwhelm.
There are so many technical details of buying a home and things you may not know about unless you’ve gone through the process before. The down payment is one of those things that many first-time homebuyers are confused about once they start down the path to securing their mortgage.
We’re here to answer the question “what is a down payment” to help you feel more prepared! Read on to find out everything you need to know about a down payment on a house.
What is a Down Payment?
Essentially, a down payment is an amount you pay the lender upfront that shows you’ll be good for the rest of the loan. It’s almost like a good-faith payment ahead of them letting you borrow the full amount.
It also lowers the total amount you have to take out from the lender and how much you have to pay back!
Who Needs a Down Payment?
In short, everyone who gets a mortgage from a lender will be required to pay some kind of down payment. The variation often comes in how much the down payment is, though there are some lenders who offer zero down programs where none is required.
A first time homebuyer can work with their lender to find a rate that will work with their current financial situation.
How to Determine the Amount of a Down Payment?
One of the more confusing aspects of a home down payment is trying to determine how much to put down as it can often be left up to the homeowner to decide.
Many experts suggest using a loan to value ratio calculator to see how much you have to put down compared to the purchase price and what that percentage is. There is varying advice for what the percentage is, we suggest talking with your lender for optimal personalized recommendations.
Where Does the Down Payment Go?
Some first-time homebuyers also get confused about where the down payment goes, to the bank or the loan? It actually doesn’t really go to either. The down payment goes directly toward the purchase of the house so you don’t have to take out that amount in your loan amount. So the more you can put down upfront, the less you have to take out!
Getting Ready to Buy Your First House
There’s a lot of steps to take before you can truly be ready to purchase a home but understanding what is a down payment is a very important one. Most people won’t be able to secure the home they want without a mortgage and that isn’t possible in many cases without the down payment.
Understanding the ins and outs of a down payment helps you make smarter financial decisions so that you can get to the point where you have the desired down payment and are ready to make your purchase!
If you’re interested in learning more about real estate, check out our other articles today!