September 10, 2019
If you’re considering purchasing a home, you’re likely beginning to realize you need a good chunk of change to do so. The standard amount for a home’s down payment is generally 20% of your home’s purchase value—and that’s not considering the additional closing fees you’ll also have to pay. Here are a few upsides and downsides to consider.
What is a Down Payment?
Your down payment is the part of the purchase price of a home that you, the buyer, pay in cash up front. It’s not included in the loan and is probably the biggest hurdle for many first-time home buyers. But when you list all of your assets and sources of income to determine how much you can pay down, you may find that you can afford more than you thought you could.
But what if your assets don’t add up to the amount you need? Don’t give up hope. There are ways to make your dream of home ownership work:
• Look for a loan that requires less money down.
• Consider getting Private Mortgage Insurance (PMI).
• Talk to one of La Cap’s loan representatives for other loan options.
How PMI Works
Private Mortgage Insurance (PMI) is insurance provided by a non-government insurer to protect a lender against loss if a borrower defaults. Lenders usually require PMI if your down payment is less than 20 percent of the purchase price.
If you are having problems making your down payment, PMI is an option. It allows for a lower down payment. La Cap and other lenders like PMI because it protects them in case you default on the loan. You can pay for PMI on a monthly basis, as part of your mortgage payment. You no longer need to carry it once you reach 20% equity in your home.
Don’t Forget Your Assets
It’s the first step in coming up with the amount of money you need to secure your interest in the home and the loan you want. When calculating your assets, include these:
- All checking and savings accounts
- The value of stock, bonds, stock options and your 401(k)
- A 401(k) loan
- Social Security and disability payments
- Pension income
- Alimony and child support
- Family gifts
Prepare for Purchase
Once you have your down payment and PMI situation figured out, you’ll be well on your way to home ownership. Should you have any questions about a down payment calculation or to determining whether a PMI plan is right for you, contact us today. A La Capitol representative can walk you through the financial analysis and mortgage application process.
We make loans to qualified creditworthy members. Equal housing lender. NMLS #411413.