What You Need to Know About Making a Home Down Payment
People who are new to the home buying process usually know that they're expected to make a down payment when they purchase a home, but they often have questions about how down payments work.
A down payment is a percentage of the cost of the home paid in cash as a supplement to the home loan. Altogether, the home loan and the down payment must equal the purchase price of the house. A person who wants to buy a home must have cash on hand to make the down payment, except in circumstances when a down payment is not required according to the loan terms.
Just how much money is required for the down payment and how the down payment can be obtained is important information for home buyers to have. Here's what they need to know.
How Much is A Down Payment?
The amount of the down payment depends on the type of loan and the cost of the house. FHA loans require a down payment that is at least 3.5% of the price of the house, while conventional loans typically require a larger down payment. A standard down payment for a conventional loan is about 20% of the cost of the house.
Can You Borrow Money For A Down Payment, Or Get a Down Payment As A Gift?
Most of the time home buyers cannot borrow money for a down payment. Sometimes, in some circumstances, a down payment can be given to the borrower as a gift. Either way, the borrower should work closely with a lender to ensure that the money they secure for the down payment is obtained in such a way that it will not hinder the borrower's ability to qualify for a loan.
Can You Get Your Down Payment From Your 401K?
Money from a 401K can be used to make a down payment on a home. Doing this can incur penalties like fees and income tax. There are some ways to avoid paying these penalties, but home buyers should work with a financial planner to determine whether this is an option for them.
Do All Loans Require A Down Payment?
Not all loans require the buyer to make a down payment. While conventional loans and FHA loans both require down payments, VA loans and USDA loans do not. In order to qualify for a VA loan, the borrower must be an active member of the military, a surviving military spouse or a veteran.USDA loans are typically available to low-income home buyers purchasing homes in rural communities. Borrowers who want to know more about either of these loan types can contact a knowledgeable lender to see if they will qualify.
What Is Earnest Money, and Is It the Same As A Down Payment?
Earnest money is an up-front payment made at the time that the home buyer and the home seller enter the escrow period. Earnest money can be as much as 3% of the purchase price of the house, though it is often less. If the buyer breaks the contract and does not purchase the house, the earnest money is forfeited to the seller. Earnest money is held in escrow throughout the home buying process and is eventually rolled over into the down payment.
If you're a home buyer who wants more information about down payments, talk to your Perth Amboy lender. Your lender can tell you how much you can expect to pay and can give you guidance if you do not have the money for a down payment right now.