ANSWERS: 1
  • The amount of down payment required to purchase a new home is determined by the type of mortgage selected. The minimum down payment can range from zero to 5 percent of the purchase price, depending upon mortgage type.

    Types

    USDA and VA loans allows borrowers to have a zero percent down payment. FHA loans require a 3.5 percent down payment and conventional mortgages require at least a 5 percent down payment.

    Function

    A down payment reduces the amount of the mortgage needed to purchase a home. Lenders prefer borrowers with larger down payments, which reduce their risk of loss in a foreclosure.

    Significance

    Borrowers with little funds for a down payment seek out smaller down payment requirements. These are mostly found in government loan programs.

    Considerations

    The larger the down payment, the lower the monthly mortgage payment for the borrower.

    Benefits

    A smaller down payment allows a borrower to use saved funds for moving expenses, and any needed repairs or decorating expenses on the new home.

    Source:

    FederalReserve.gov: Looking for the Best Mortgage

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