When you are thinking about buying your first home you will inevitably want to know the answers to these very common questions. This is fair, with the vast amount of mortgage options and a constantly shifting set of rules it can be hard to know the right answers. Let’s get you up to speed on these three common down payment questions.
1. Do I have to put 20 percent down?
This question is absolutely the most common and for good reason. The quick answer is that, yes, some mortgage companies do require at least 20% down but there is a dearth of options in Central, TX that require much less.
Private Mortgage Insurance (PMI)
The first option can let you get into your new home for as little as 3%-5% down. If you are ready to buy but haven’t saved the $30,000 – $60,000 for a down-payment you can buy a home with a private loan and PMI. Typically PMI will cost between 0.3% – 1.10% of your total mortgage and will stay in place until you have reached 20% equity on your purchase. This additional insurance will automatically drop off your monthly mortgage when you reach 22% equity. This one is a trade off but is the most accessible option for you if a 20% downpayment isn’t possible.
New Affordability programs
There are some exciting new programs that are available for anyone looking to purchase a home that can help you buy a home for less than 1% down. Our partner Kelley Ollendorf of Guild Mortgage shared their new 1% down conventional loan. If you have outstanding credit (680+) and are making less than the area median income (~55k Household) you might qualify. To find out for sure if this program would work for you talk to your Stanberry agent.
VA Loans (Military Only)
If you are Active military or a veteran you may qualify for a Veterans Affairs loan. Most members of the military, veterans, reservists and National Guard members are eligible to apply for a VA loan. These mortgages do not always require a down payment and are available to military veterans and active military members. The best news is that VA loans are not subject to PMI like traditional civilian loans.
2. How much should I put down?
So now that you know that you don’t necessarily need 20% to start the home buying conversation you might be thinking “How much SHOULD I put down?” While a 20% down payment will ensure that you don’t run into additional expenses like PMI it may not be the right choice for you. If 20% is not going to happen you should consider how much of a monthly payment you are interested in making. In general, for every $1000 you put down you will reduce your monthly mortgage by around $60.
This is also the time to consider if there will be necessary purchases that you will need to make for your new home. This could include lawn care equipment, appliances, or upgrade you plan on making. For some, a slightly higher monthly payment is worth being able to get a jumpstart on some customization or perks for your new place.
3. Are down payments tax deductible?
Most of the time a cash down payment is unfortunately not tax deductible. Worry not though, when you work with a REALTOR they will be able to give you a good idea of some of the things involved in purchasing your home that is tax deductible. PMI interest can be claimed along with property taxes at the end of the year. When it comes to these deductions each house is unique so make sure that you talk with your REALTOR to find all of the information you need.