Typically, the down payment for a typical down payment on a house will be around four percent. The lower the down payment, the faster the homeowner will get into the house and close on it. Most lenders recommend that you have at least ten percent down if you are a first time home buyer. However, some government backed loans and some nontraditional home loans may allow for as little as three percent or even zero percent down.
If you are planning to purchase a house, you need to weigh your options regarding mortgage insurance premiums against your other options such as loan terms, property tax savings, and down payment savings. A common alternative to mortgage insurance is to cancel PMI. For many homeowners who have had to cancel their PMI due to an insurance cancellation, this is a serious savings because you will not have to pay premiums for several months. However, you should only cancel PMI if your lender explains to you that you qualify. Otherwise, you will simply be conducting business with an insurer that will eventually jack up your rates.
Another alternative to interest rate discounts is to choose loan terms that have a higher interest rate. However, if you can save only two to four percent on the interest rate for your house purchase, you will need to make a tradeoff between your house price and your new interest rate. If you buy a house at a fixed rate with a low initial value, you will end up paying more for your house in the long run. Conversely, a lender may also reduce your interest rate for your loan if you agree to a five year amortization.
Since buyers often do not factor future house appreciation into their budget, they do not have to worry about how much they can afford to pay for a house right now. However, if you need a larger down payment, your lender may be willing to provide a bigger down payment and let you finance the entire purchase price over the course of the mortgage term. You will then pay the remaining amount due on the house as a down payment.
Another option to consider is that some lenders will waive closing costs for the first few months of the purchase if the buyer has a sizeable down payment. In most cases, the lender will also require that a potential buyer submit to a credit check, so this can be another incentive to get you to put down a large down payment. However, it is important to note that this may result in higher interest rates or a limited time period in which to spend the money.
Many buyers believe that if they want a home with a large amount of flexibility, they should forego a large down payment. This is actually a mistake, because it can keep the buyer from being able to control how much they spend, and can also keep the seller from lowering the selling price before the purchase is complete. When you factor in the time necessary to sell a house and the potential loss if no one ends up buying it, a large down payment is actually a good strategy. It can help you save a lot of time.
If you find a lender who is willing to waive closing costs, you may also be able to reduce the purchase price of the house. Most lenders prefer to see at least 20% of the total purchase price of the property paid upfront before they will write a check. Since they stand to lose a lot of money on this scenario, they are more than happy to accept your down payment and write the check for the remaining amount in full, plus their fees. This allows them to list the house quickly without having to deal with a long, complicated real estate transaction.
Once you locate a lender who is willing to waive the closing cost, you will have drastically reduced the price of the house. It is imperative that you take the time to comparison shop a number of different lenders. Make sure you understand the terms of the agreement as well as any documentation that is required for the purchase. The typical down payment will not be waived unless you fully understand the paperwork you will need during the transaction.