Conventional Mortgage: Got 20 Percent Down?
While you won't need a 20 percent down payment for every conventional mortgage, the 20 percent figure is pretty standard. Without it, you'll pay mortgage insurance for sure, and may have a higher interest rate as well. So the question remains: do you have 20 percent of the home price set aside in cash for a down payment?
Let's take a look at how financing works, first. Mortgage loans are typically categorized as either fixed rate or adjustable rate. Sometimes they can even be a combination where the rate is fixed for a certain period of time and then converts to an adjustable rate for the remainder of the loan term. This often works during times of falling interest rates, which is not what's going on in today's housing market.
Common loan terms for almost all loans including a conventional mortgage are 30 or 15 years. However, lender like AmeriFirst also offer terms as short as 10 years and can offer 20 and 25 year terms in some instances. In most cases, the shorter the loan term, the lower the interest rate (but the higher the payment since the loan is being amortized over a shorter period of time). As an example, total interest paid in a 15 year loan may end up being less than half what you’d pay on a 30 year loan, but your monthly payments will be higher.
A conventional mortgage is often one of the lowest-priced mortgages on the interest rate. It’s also one of the most costly loans up front. From the consumer side of things, a conventional mortgage often requires the borrower to have a 20% down payment. Then you simply borrow the rest from the lender. Because you’re putting more money down, you’re starting with more equity than a borrower with a lower down payment.
Lower Down Payments
Mortgage loan options like FHA loans, USDA Rural Development and HomePath® Mortgage all offer home buyers the chance to put less money down on the purchase of a house. For FHA, the down payment requirement is 3.5%. HomePath is a bit lower at 3%. USDA Rural Development offers 100% financing so you don't need to have a down payment (although you will likely need cash at the closing table for things like escrow and fees).
Learn more about your home buying options with "The Only Mortgage Loan Options Guide You Need" at the button below. The 12-page eBook covers your choices in today's housing market, including a conventional mortgage. Download your guide today and get started on your home buying adventure.
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