A down payment is the amount you pay toward the home yourself. You put a percentage of the home’s value down and borrow the rest through your mortgage loan.

Your Down Payment and What It Means For You

I will put down 20% or more. A 20% or higher down payment likely provides the best rates and most options. However, think twice if the down payment drains all your savings.

I will put down between 5% and 19%. You probably have to pay higher interest rates or fees. Lenders most likely require private mortgage insurance (PMI). PMI is an insurance policy that lets you make a lower down payment by insuring the lender against loss if you fail to pay your mortgage. Keep in mind when you hear about “no PMI” offers that doesn’t mean zero cost. No PMI offers often have higher interest rates and may also require you to take out a second mortgage. Be sure you understand the details.

I will make no down payment or a small one of less than 5%. Low down payment programs are typically more expensive because they may require mortgage insurance or a higher interest rate. Look closely at your total fees, interest rate, and monthly payment when comparing options. Ask about loan programs such as:

  • Conventional loans that may offer low down payment options.
  • FHA, which offers a 3.5% down payment program.
  • VA, which offers a zero down payment option for qualifying veterans.
  • USDA, which offers a similar zero down payment program for eligible borrowers in rural areas.

The advantages of prepayment

Prepayment is when you make additional mortgage payments so you pay down your mortgage early. This reduces your overall cost of borrowing, and you may be able to cancel your private mortgage insurance early and stop paying the premium. Especially if your down payment is less than 20%, it may make sense to make additional payments to pay down your loan earlier.

CosmoLends are experts in home loan products including FHA, VA, Conventional, USDA and OHFA, as well as purchase rehabilitation loans such as the FHA 203(k) and HomeStyle Renovation products. Call us and speak to one of our mortgage coaches to find out how we can help. You can also call us at 216.387.1003 and speak with a member of our loan team for a FREE consultation.

Published from Your home loan toolkit – A step-by-step guide by Consumer Financial Protection Bureau