The downpayment is perhaps the most important aspect of purchasing a home, especially for a first-time homebuyer. It is important to understand the downpayment and how it works before making an offer on a home. A downpayment is the portion of the home’s purchase price that the buyer pays in cash. The primary purpose is to show the lender that the buyer is serious about purchasing the home and can come up with the cash for the downpayment. The secondary purpose is for the downpayment to reduce the mortgage amount, which in turn lowers the monthly payments. Continue reading to learn more about the average downpayment in the US.
What’s the Average Downpayment on a House?
The average downpayment on a house is typically 20%. While this is the average, it is important to keep in mind that some homebuyers are able to put down less. Many factors can affect the downpayment amount. The variables that will impact how much must be paid upfront include personal factors such as your credit score and employment history. Other factors include the type of home being purchased, the loan program being used, the buyer’s financial situation, and the location of the home.
What’s the Source of Funds for a Downpayment?
The source of funds for a downpayment can come from a variety of sources. The most common source of funds is monthly income and personal savings. Other sources can include gifts from family or friends, grants, loans, or equity from a previous home. Other homebuyers may resort to getting different sources of funds together, combining to shoulder the overall amount. And to reiterate, the amount that should be used for a downpayment depends on various factors.
What Are the Loans with Lower-Than-Average Downpayment?
Many different types of loans with lower-than-average downpayment requirements. The most common is an FHA loan, which requires a downpayment of 3.5%. Another common loan is a VA loan, which is available to veterans and requires no downpayment. Some lenders offer their own programs for low-downpayment loans. It’s important to consult a reliable mortgage lender regarding the matter and compare different offers to find the best terms and conditions.
How Can You Save for a Downpayment?
Saving for a downpayment on a home can be a daunting task, especially if you’re not sure where to start. However, with planning and discipline, you can make it happen. Here are a few tips to help you get started:
- Build a Separate Savings Account. A savings account will keep your funds separate from your daily spending. It will also keep track of your progress and make it less tempting to spend money on other things.
- Save with Additional Fees in Mind. When you’re saving for a downpayment, be sure to keep any additional fees, like closing costs, in mind. This will ensure enough money to cover all of the costs associated with buying a home.
- Seek Out Downpayment Assistance. There are many programs available in the US that can help you with the downpayment on your home. Do some research to see if you qualify for any of these programs.
Buy a Home or Refinance in Michigan
If you are thinking about buying a house, it’s important to know the average downpayment and start saving early. The more money ready for a downpayment, the easier it will be to get a loan, and the lower your monthly payments will be. Looking for mortgage lenders? Mortgage City is a licensed mortgage originator in Michigan, Florida, and New Hampshire. Call us at (248) 930-8709 today!