"What is the down payment on that house and what will the payments be?" It's a question that I get all the time from people browsing homes on my website, and it's a tricky question to answer.
It's tricky to answer because it depends on which loan program the buyer qualifies for and has little to do with the house itself.
Down Payments Depend on Loan Programs, Not Houses
The amount required for a down payment depends more on you, the buyer, and what type of loan you use and not on which property you buy. There are exceptions to that, but we'll go into them later on.
For right now let's go over the basics.
Three Main Types of Loans
Three are three main loan types: Conventional, FHA and VA. You may qualify for all three of them, or you may not qualify for any of them. Each type of loan has a down payment amount tied to it, so how much you need to put down on a house depends on which loan program you qualify for.
VA stands for Veteran's Administration. There types of loans are for military veterans who have been honorably discharged from the service (read more about VA loan eligibility). If you qualify for a VA loan, you can put zero down. However, in some cases it may not be the best loan program for you.
FHA stands for Federal Housing Administration. This is the most popular type of loan for first time homebuyers. You don't have to be military to get in on this one, and you can put as little as 3.5% of the purchase price down. On a $200,000 house that's $7,000, on a $150,000 house it's $5,250. It's easier to qualify for a FHA loan than it is a conventional loan because, like a student loan, the federal government insures it.
If you're not a veteran, and you don't have 3.5% to put down, there is a special loan program that may work for you, and we'll talk more about that it a minute.
Conventional loans are for everyone who qualifies too, but these days you typically have to put a minimum 5% down.
All three types of loans can require what's called mortgage insurance if you put less than 20% down. Mortgage insurance insures the lender, not you, against your default on the mortgage since putting less than 20% down is considered to be risky. You have to pay the premium, it's added into your monthly payment.
That's why if you can come up with the 20% down, not only is your monthly payment going to be lower because your principal and interest is less, but it's going to be lower because you don't have the mortgage insurance tacked onto your loan.
Are you starting to get the picture why the answer to the question "What is the Down Payment on that House" is tricky to answer?
Not All Homes Qualify for All Loan Types
Earlier I said that your down payment amount depends more on you, the buyer, and what type of loan you use and not on which property you buy. Well here's the exception.
If that property is in really bad shape, it may not be financeable using a VA or FHA loan. That's because those government backed loans are pickier about property condition than conventional loans.
If that's the case, then you're not going to be able to put zero down or even 3.5% down. You'll need to try using a conventional loan, putting more money down, and even that may not work because of property condition. Just like lenders don't loan money to buyers who look like they aren't gong to repay it, they don't lend money on houses that look like they need too much repair.
What if You Don't Have 3.5% for a Down Payment?
Like I said earlier, if you're not a veteran, and you don't have 3.5% to put down, there is a special loan program that may work for you. It's called the MFA loan, and it's a great loan program for low and middle income individuals or families. Here's more about it:
For more homebuyer tips and advice visit my YouTube channel.
by Albuquerque Real Estate Agent Rich Cederberg, eXp Realty (505) 803-5012.