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What is my down payment? Should I put more or less down?

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Various types of loan programs exist that offer various combinations of down payment, interest rate, mortgage insurance, and payoff schedules.

Some loan types require a minimum of 3% down payment (FHA Loans) or 5% on conventional loans. Veterans can buy with no money down (VA Loan). Putting down as little as possible allows you to take full advantage of the borrowing leverage and tax benefits of homeownership. Some mortgage interest and property taxes are deductible from state and federal income taxes.

Buyers using a small down payment can leave a reserve for making improvements. It might be more prudent to make a larger down payment and thereby cut the amount of debt financed. The term of the loan has a tremendous impact upon the amount of principal paid down on the loan each month. The difference in equity pay down between a 15 year fixed loan and a 30 year fixed loan is astonishing.

When a buyer puts 20% or more as a down payment on their desired home, the Lender can waive the mortgage insurance requirement. Mortgage insurance is required on all other loans, except veterans guaranteed loans. That means a full years premium for the insurance is collected “up front’ at the closing of escrow, plus you will be paying it monthly as part of your principal-interest-taxes-insurance.

Talk to your lender about various loan scenarios and make sure you understand the near-term and long-term implications of each approach.

Notice: This website contains general information about legal and financial matters. The information is not advice, and should not be treated as such. You must not rely on the information on this website as an alternative to legal or financial advice from your attorney, accountant or other professional services provider. If you have any specific questions about any legal and financial matter you should consult your attorney, accountant or other professional services provider.