How Important Is It To Have A Down Payment When Buying A Home?

How important is it to have a down payment when buying a home? Sometimes it helps to have a down payment on a home, depending on the economic strata. While having a large down payment is a definite plus...

While having a large down payment is a definite plus if you are looking for financing, there is no need to let that present an obstacle to keep you from buying a home. While the standard down payment used to be 20 percent of the home's purchase price, many lenders are now allowing borrowers to reduce that percentage or even put nothing down, depending on the borrower's credit history. You also get to deduct the interest on your home loan from your taxes, regardless of how much or little money you put down. Richard Fryer, a real estate school president with 30 years of experience in the field, states that there are many options available to people who do not have enough money to make a substantial down payment. "On the lower economic strata, there are a number of assistance programs for down payment assistance. Most states do what we call 'affordable housing programs' to help people get into that first house. There are a lot of loan programs where you can borrow 100% of the rate of the property. All of these down payment assistance programs work a little differently, but in just about every state you will find them," he says.

Two of the most common programs people use to buy a home with little or no money down are the VA and FHA loan programs that are sponsored by the federal government. If you are a military veteran, you may be eligible for a VA loan, which are administered by the Department of Veteran's Affairs and does not require a down payment. Others may be able to take advantage of an FHA loan, which are insured by the Federal Housing Administration and only requires a three percent down payment. Another bonus of FHA loans is that the entire down payment can be donated from a friend or a relative. Lenders commonly refer to these types of donations as down payment "gifts".

If you have a low to moderate income, you also may be able to qualify for several programs offering low or no money down. Most real estate agents and mortgage loan officers are very familiar with special programs that the government, private lenders and non-profit organizations offer to provide assistance to people who are not able to put a lot of money down on a home.

While there are many options available to homeowners who do not have a lot of money for a down payment, it is still recommended that you put as much money down as possible. The main reason is for this is that not only does a larger down payment lower your monthly payments, but putting a significant amount of money down also gives you instant equity that you can use to cash-out, refinance or borrow against at any time. In addition, people who put less than 20 percent down are required to purchase private mortgage insurance that they will have to pay monthly premiums on until they build up a certain amount of equity in the home.

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