If you are planning to buy a home through a mortgage, you are probably already in the process of saving up your extra cash for the down payment. But if you don't have a mortgage professional to give you advice on how much down payment you need for your prospected property, you may be just playing guessing games as to how much you need to prepare. Different mortgages require different down payments but here are some general guidelines that will help you in calculating down payment.
First, when it comes to down payments you have to consider what your lending company wants to see as this will determine your eligibility for a mortgage. A lender wants to determine that you can afford your prospect home. And this is why the ideal amount of down payment is at around 20 %. Sure you can pay as little as 5% for your DP, but preparing a bigger down payment will look better on your mortgage application. Plus, it would mean that you would no longer need to get a private mortgage insurance, which will result to saving a few extra bucks.
Secondly, your income will determine the amount of DP you can afford. For example, you want a $300k mortgage to be paid for 25 years. If you're gonna drop $25k for a down payment, your monthly mortgage will be approximately $920. To afford that monthly payment, you should have a total income of around $3300. But if you want to decrease your monthly payment and make it $835, you must increase your DP to $50k.
Lastly, down payment requirements are different depending on the mortgage kind. Although there are laws that revolve around the amount of DP you need, there are cases where the rules are non conventional. The Veterans Affairs office for instance, they provide mortgages through private lending companies and these mortgages are offered specifically for: people active in military service; those who are already veterans; and their spouses. A VA loan doesn't require a down payment for loans within the maximum limit, and a 25% DP is needed if you go beyond the limit.
As a whole, your down payment will be influenced by many factors. A real estate expert will help you figure out how down payments work and what DP is perfect for your specific fininancial situation.
