Rent vs Buy in Cambridge>Question Details

abutcher895, Home Buyer in Cambridge, OH

When buying a home, do you need to have a down payment?

Asked by abutcher895, Cambridge, OH Sat Nov 3, 2012

With the research I have done the down payment only makes the monthly payment decrease by $50-$60, unless you are putting more then 20% down. Also, does the buyer need the money up front for the one time costs, like the closing costs, or can that be included in the loan?

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Simon Campbell’s answer
If you do not put at least 20% down on a mortgage, lenders are going to require you to pay mortgage insurance, known as PMI. PMI charges vary depending on the size of the down payment and the loan, but they typically annually amount to about one-half of one percent of the loan, according to the Mortgage Bankers Association of America. Home buyers must maintain the PMI premiums until they cross that one-fifth-of-principal threshold, a process that can take years in longer-term mortgages.

If you buy a $100,000 house and finance the purchase for 30 years at a rate of 3.75%, let's see how PMI will effect your payment:

Down Payment 20%: Loan Payment: $370.49, PMI: $0 = Total Payment: $370.49
Down Payment 10%: Loan Payment: $416.80, PMI: $37.50 = Total Payment: $454.30 Diff: $83.81
Down Payment: 5%: Loan Payment: $439.96, PMI: $39.58 = Total Payment: $479.54 Diff: $109.05
Down Payment: 0%: Loan Payment: $463.12, PMI: $41.67 = Total Payment: $504.78 Diff: $134.29

As you can see, when you factor in the PMI, the monthly payment increases dramatically.
0 votes Thank Flag Link Tue Nov 13, 2012
Typical loans are 20% down (conventional), other loans types such as FHA can be 3%. One of the reasons to put 20% down is to avoid paying PMI which is an insurance that covers the loan should you default. The PMI (private mortage insurance) can be removed from the loan after a certain percentage is paid down, I believe it's to 78% in Ohio. Closing costs can be financed, or you can ask that the seller pay them (or a portion of them). You may also want to pay points (1%) of amount amount financed i.e. $100k, 1, 000 is 1 point of interest that can significantly lower your payments over the long term. Hope this helps! You may also want to look up information on loan to value and how much savings you have. All of this is considering when a loan is originated.
0 votes Thank Flag Link Wed Apr 17, 2013
Hi, It is very hard if at all possible to get a loan these days without a down payment. VA loans allow for 100% financing but you have to be a veteran. Look into an FHA loan, they allow for a minimum of 3.5% down and you can roll your closing costs into the loan. The banks want to see borrowers with skin in the game...in addition a seller wants the same.

Chris
0 votes Thank Flag Link Sat Nov 3, 2012
The requirement of down payment depends on the type of loan you are getting. There are some no money down loan programs such as VA or rural development. All of Guernsey county is covered in the rural development program. This does not mean that every home will qualify.
0 votes Thank Flag Link Sat Nov 3, 2012
Whether a down payment is required is determined by your financing. In a few cases--such as VA loans--you don't need a downpayment. It's 100% financing. With FHA loans, you must provide a 3.5% downpayment. With other types of loans, you might be required to provide up to 20% down.

Your research regarding down payment is incorrect. The amount by which the monthly payment is reduced depends on: (1) the interest rate; (2) the amount you're putting down; (3) the length of the loan, and other factors. There are plenty of online calculators that can show you how those variable work together.

As for those up-front costs, many (but not all) sometimes can be included in the loan. It depends on the particular type of mortgage. A buyer also can ask the seller to pay some of the closing costs. That's a point of negotiation; your Realtor can help you with that. But, to oversimplify a bit, it's often possible to purchase a home and pay little or nothing in closing costs.

Hope that helps.
0 votes Thank Flag Link Sat Nov 3, 2012
Don Tepper, Real Estate Pro in Fairfax, VA
MVP'08
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Understand that having no EQUITY in your house, was the biggest reason why we had so many foreclosures.

There are programs; fewer than we used to have, and sporatic at best.

Also, understand that as a rule, if you have less than 20% equity, the Lenders require you to have PMI, which insures the Lender in the event you default: This can add a lot to your monthly mortgage.
If you put 10% down, then you will pay PMI until you reach that 20% level, when you can petition the Lender to stop doing that.

Talk to several Lenders; look at their GFE's and compare the numbers.

Good luck and may God bless
0 votes Thank Flag Link Sat Nov 3, 2012
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