Many of the questions we receive from homebuyers here at Island Coast Mortgage concern down payments. Indeed, we have found that quite a few borrowers believe some things about down payments that are simply not true.
Misconception About Downpayments
Below are some common misconceptions about down payments. Once we dispel these down-payment maths, you may realize that you have more options than you thought with respect to making a down payment on a new home.
- You cannot buy a home without a 20% down payment.The single biggest misconception about down payments is probably the belief that the only way you can purchase a home is by making a 20% down payment. But such is not the case. JB Broughton of Island Coast Mortgage quoted: “It is possible to purchase a home with a much lower down payment, or even no down payment, depending on what type of mortgage you qualify for.” Even down payments for conventional loans can be as low as 3%.
- If you can afford the down payment, you do not have any other upfront costs to deal with.It is easy to get preoccupied with making your down payment, to the point of forgetting about other fees, or not realizing that other fees might apply upfront when you are purchasing a home. But you will need to be prepared to pay your closing costs as well. So, do not forget to factor that into what you set aside to pay upfront to own a home.
- You cannot get down payment assistance if you are not buying your first home. Down payment assistance programs are marketed largely at first time home buyers. Because that is the case, many repeat homebuyers assume that they do not qualify for any form of down payment assistance. But in reality, some down payment assistance programs are available to repeat homebuyers as well. You should check with programs in your area to see if any of them are available to you.
- There is no benefit to putting more than 20% down on a home. It seems common for homebuyers to be advised by others to just put down the minimum they need to in order to purchase a home. Indeed, you may wonder if there is any reason why you would ever want to put down more than 20%, even if you could afford it. Here are some possible advantages of making a larger down payment if you can afford it:
- Your mortgage payments may be lower.
- You might be able to pay your loan off sooner.
- Your interest rate may be more affordable.
- You could pay less interest overall over the lifetime of your loan.
You will need to figure out based on your own personal financial situation whether putting more than 20% down on a home might be worthwhile.
- Gifts are not allowed for down payment funding. There may or may not be restrictions on the use of gift money to make your down payment, depending on the lender you are using and the type of mortgage you applied for. But a lot of homebuyers are under the impression that they can never use gift money for a down payment, and that is not true. Ask your mortgage company whether this is an option for you or not.
- A smaller down payment is always better. Some people believe that you should try to pay 20% down in order to steer clear of PMI, but a lot of people believe that the benefits of a lower down payment always more than offset the costs of PMI. Is that true? Is it always better to pay under 20% and be saddled with mortgage insurance? Well, there are obvious benefits to a lower down payment, including:
- You have more liquid finances available now (i.e. for investing, or just for financial stability).
- You can buy a home right away (if you would have a hard time making a larger down payment).
But again, this is a very personal decision. Individual needs can vary quite a bit. These benefits might outweigh the costs of PMI for you, or they might not.
- You are on your own trying to figure out how to make your down payment. Finally, one more myth about down payments is that you need to figure out how to afford yours on your own. But that is not true. Your mortgage broker can assist you.
Island Coast Mortgage Can Help You Buy a Home With a Large or Small Down Payment
At Island Coast Mortgage, we are dedicated to helping you move into a new home in Florida right away, regardless of your means to make a 20% down payment. We can help you consider the pros and cons of large and small down payments, and point you toward loan options and assistance programs that might help you out.
If you are ready to get answers to your down payment questions and buy a home in Florida today, please give us a call at 239-214-7011.