What kind of down payment do I need? How does the amount of down payment I make affect the terms of my mortgage loan?
There are many options for making down payments. The amount of your down payment will vary by the loan you choose and the lender’s requirements. Generally, the larger the down payment you are able to make, the lower the interest rate you will receive and the more likely you are to be approved. If you cannot make a down payment of 20 percent, lenders usually will require you to purchase private mortgage insurance or obtain an FHA, VA, or USDA loan.
Ask about how your down payment affects your interest rate and what options you have when you shop around for different loans.
Don’t forget to factor in all the upfront costs you will have in addition to the down payment. Think about all the costs that you’ll likely have to deal with during the purchase process and immediately afterward. For example, you may want to pay points to lower your interest rate. You’ll also have to pay closing costs, which sometimes can be substantial. And don’t forget about the cost of moving and making any repairs that are needed right away.