Down Payments: What You Need to Know

Is a down payment the only thing standing between you and your dreams of homeownership? We can certainly understand – your down payment is one of the biggest expenses you’ll have in your lifetime. And that can make more than a few folks nervous. If you’re getting sweaty palms just thinking about your down payment on a North County San Diego house, then it’s important to educate yourself about what it is, why you need it, and how to save for it. Understanding the process can alleviate many of your concerns, so here’s what you need to know.

It’s a percentage of the sale price

First of all, let’s clear up any misconceptions about what a down payment on a home is. The down payment is merely how much money you are paying upfront for a home. It’s generally represented as a percentage of the sale price. Let’s say that you agree to pay $400,000 for your dream North County home. If you make a down payment of 20 percent, which is common for a conventional home loan, then you’ll pay $80,000 upfront.

How much you’ll pay depends on several factors

The percentage of the purchase price that you’ll pay for your down payment can be dependent on several factors. First, the type of loan will dictate how much or how little you’ll pay. As stated above, conventional home loans often require at least 20 percent down. But if you qualify for a government-backed loan, such as an FHA loan, you may pay as little as 3.5 percent down. For USDA and VA loans, that number could be as low as zero. Other factors will determine how much you pay for your down payment including your income and credit history.

A down payment helps both you and your lender

Down payments help your lender mitigate risk. When you borrow money for a home, there is always a risk that you may default on your payments. When you make a large down payment, your lender assumes less risk. But making a down payment can also help you. You’ll begin your journey as a homeowner with equity, which is one of the best ways to build wealth over time.

It’s not paid all at one time

While it may seem like a down payment is paid all at one time, it’s actually done in two installments. When you first go into contract on a North County home, you will pay an earnest money deposit. This is generally one to three percent of the sale price. When you finally close on the home, your earnest money deposit will be subtracted from the amount you pay for your down payment.

There are many ways to save for a down payment

Does the idea of saving for a down payment give you chills? While it can be a big expense, there are several ways to come up with the money. The first, of course, is to create a savings plan. Secondly, if you’re concerned about making a large down payment, then look into the government-backed loans described above. This could substantially cut down the time it takes you to save for your down payment. If you already own a home, you can use your equity to make the down payment. You could do this either by selling your home and using the profit or by taking out a home equity loan. Down payments can also be made as monetary gifts from family or friends, provided the strict guidelines are followed. And, of course, you can make a down payment with any financial windfall you may receive, such as an inheritance.

Talk to the experts today

Are you ready to make a down payment on your very own North County San Diego home? Then contact the experts at the Cristine Clark & Jamie Gilman Team at 760-758-1211 or [email protected]. Our team is standing by to answer all your questions!

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