Down Payment Options

There are as many down payment options as there are dollars in the value of your new home. You could have a 100% loan in which case the down payment is nothing, or you could pay cash for the whole house in which case the down payment is 100%. These are, of course, trivial examples.

Continue Reading

The basic point of down payment options is that the more you pay of the value of your new home in cash then the happier the lender will be and the lower the interest rate they will charge you. The more equity value you have in the building, the less risk they have, so of course the price changes. Your credit rating can also affect your options. If you have bad credit, or anything less than very good credit, then you can find yourself being offered some very unattractive interest rates and points charges. One way to deal with this is to make a larger down payment.

The most important number to remember with down payment options is 80%. Or 20% if you look at it from the other side. If your down payment is less than this 20% then you must take out mortgage insurance. This can be quite expensive so if you have the ability to make that 20% payment it is often better to do so. There are ways around the requirement for that insurance, like the 80/20 option (and its close cousins, 80/10/10, 80/15/5 and so on) where you have a first mortgage for 80% and then a secondary one for the remainder but this again can be more expensive.

The golden rule, then, is that you should make your down payment as large as possible. You’ll thank yourself for it a few years down the line while you’re enjoying lower interest and easier repayment terms.