Real Estate SOULutions

Last time, we talked about the importance of having a down payment when purchasing a new home (click here to review that post.) Although there is no hard-and-fast rule about how much a down payment “should” be, we recommend 20% since most lenders will not require you to buy Private Mortgage Insurance (PMI) if you put 20% down. How much are we talking about, here? First let’s talk about how to calculate your down payment. If you are trying to decide how much you need to save, then you can use this calculation: $[cost of the home] x [0.2] = $[20% down payment] For example: $100,000 x 0.2 = $20,000 However, you may be working from the other side of the equation. Perhaps you are selling a home, and will be able to use some proceeds from the sale as your down payment. In this case, this is the equation you need: $[amount of down payment] ÷ $[cost of the home] x 100 = [percentage]% For example: $20,000 ÷ $100,000 x 100 = 20% Once you know how much your goal is for ...

It may have been true, once upon a time, that one could buy a house outright without borrowing any money. And while this could still be true for extremely motivated people, it is definitely more common to take out a mortgage (a loan), or have the owner finance the cost when purchasing a home. When you begin talking with the bank or home owner that will be lending you money, they will ask “How much will you be putting down?” referring to your down payment. What's the purpose of a down payment? Simply put, a down payment is a portion of the total cost of the purchase that the buyer pays at the start of the loan. We talk about down payments in terms of the percentage of the total cost of the home. From the lender’s perspective, a down payment lowers their risk in lending money. Since you’re borrowing less money, the loan is less risky. Having a down payment also shows that you’re serious about your goal of home ownership, which gives the bank/home owner confidence in...