According to real estate agents in Irvine, it wasn’t too long ago that you needed a down payment of at least 20 percent to buy a home. Buyers today have more options, including zero percent down loans through the USDA, low down payment mortgages through the FHA, and conventional lenders that offer first-time buyer programs. In general, it’s a good idea to put down as much as you can afford without compromising your security net. The larger your down payment, the less you need to borrow. This means lower mortgage payments and less interest paid over the life of your loan. Depending on the loan, putting down a specific amount may also help you avoid paying mortgage insurance each month.
Here’s what you should know about down payment requirements for popular loans and tips to make the most of your down payment.
VA loans are one of the few mortgages that allow for 100 percent financing with no down payment. If you are a qualified veteran or active duty military personnel, you can get a loan with no money out of pocket, but you will pay a funding fee. The funding fee depends on your down payment, whether it is your first time using your VA entitlement, and your category (such as Reserve/National Guard or regular military). The funding fee is 2.15 percent for first-time use if you do not put down a down payment; a down payment of 5-9.9 percent drops the fee to 1.5 percent and a down payment of 10 percent or more decreases the fee to just 1.25 percent.
Aim for at least a 5-10 percent down payment with a VA loan to lower your funding fee and save thousands when you buy a house for sale in Irvine.
FHA loans are popular with borrowers who have a low down payment or do not qualify for a conventional loan. An FHA loan requires a down payment of at least 3.5 percent. All FHA loans with a down payment of less than 20 percent require mortgage insurance in the form of an upfront premium of 1.75 percent and an annual premium (charged monthly) of 0.85 percent of the outstanding balance. Unlike private mortgage insurance (PMI) with a conventional loan, these mortgage insurance premiums never drop off your loan. You will pay the annual premium every year as long as you keep the loan.
If you get an FHA loan, make it a goal of putting down at least 20 percent to avoid this huge expense.
Conventional loans require a down payment of at least 5 percent, but you will usually need to pay private mortgage insurance (PMI) if you put down less than 20 percent. PMI can add more than $100 to your monthly mortgage payment, and it will remain in place until you have at least 20 percent equity in your home. Conventional loans– even with the PMI–are usually more affordable than FHA loans because you can get rid of PMI after building equity. Some lenders even offer first-time buyer programs so you can avoid PMI and put down as little as 5 percent.
To learn more about mortgage funding projects or to amp up your home search, visit https://www.irvineresidentialliving.com/ or give us a call at (714) 454-6304 and schedule a meeting today!