 Are you searching for Middletown, New York real estate or real estate in other areas of Orange Country? Are you confused about how much of a down payment you will need?
Selecting a down payment amount plagues many first time and experienced homebuyers. It has a significant impact on your overall mortgage and the cost of your home over time, so it is important to give it a lot of thought. This article will provide you with some ideas on how to determine your down payment for any upcoming real estate purchases.
- General Rule Of Thumb – The more money you have for a down payment, the lower your monthly payment and loan balance will be. Many lenders will require that you put down a minimum of three percent as a down payment, although there are some loan programs that do allow for smaller or no down payments (see below).
If you are able to afford the 20% of the purchase price for a down payment, you will generally avoid paying private mortgage insurance (PMI). This insurance will raise your monthly payment and is generally not considered tax deductible. With a 20% down payment on your Middletown, NY real estate, you may also qualify for a lower interest rate. Be sure to ask your lender if your rate can be reduced with a larger down payment.
- No down payment loan programs – There are programs to help when you don’t have the down payment to buy a home. With today’s high real estate prices, struggling to come up with a 20 percent down payment to buy a home can be a daunting task. Fortunately, there are options that can help. Many lenders now offer non-traditional, no down payment mortgages or second mortgages to cover the cost of a down payment.
With a no down payment mortgage, 100 percent of the purchase price of a home is financed with a single mortgage and the homebuyer makes one monthly mortgage payment. The advantage, especially when housing prices are escalating, is that you can enter the housing market without waiting to save up your down payment. The disadvantage is that you are likely going to be charged a higher interest rate than you would with a standard mortgage.
- Second mortgage (or piggyback loan) – Another option for buying a home without a down payment is a second mortgage, often called a piggyback loan. If you use an 80/20 loan, 80 percent of the purchase price can be financed through a first mortgage and the remaining 20 percent comes from a second mortgage. The advantage of this type of loan is that you don’t have to pay private mortgage insurance. The disadvantage is that the second mortgage usually carries a higher interest rate than the first. You must therefore assess if for your real estate purchase in Middletown NY, whether you are better off paying for the insurance or the additional carrying costs.
Before determining your down payment, consider both your own personal financial situation and the state of the housing market. When housing prices are escalating, it may make sense to jump into the market as soon as possible and not wait until you have your 20 percent down payment. However, the reverse is also true that when prices are dropping, if you choose a no down payment mortgage, you could find yourself owing more for your home than it is worth. Contact The Green Team today and begin investigating loan options for your Middletown New York real estate purchase! |
