In today’s economy and with its ever increasing prices, many buyers are finding that they need to increase their equity in their homes. A good bank will offer you a lower down payment to make up for the increased expense of home ownership. If you have $30,000 to $50,000 as a down payment, you will require between 3 and 5 percent down on your home. Here are the factors that you should look into before purchasing real estate and determine whether you should have a low down payment or a high down payment mortgage.
You should be aware that down payments are not tax deductible. This means that if you have a low down payment, or a high down payment, you can’t deduct the amount of the down payment from your taxes. If you have a low down payment, but plan to use it to pay down the mortgage, you could still deduct some or some of the down payment if it’s used to pay the interest on the mortgage or to pay the property taxes.
In this situation, you could say, “Well, in the next few years I’ll only need $10,000 down payment and I’ll pay off all my mortgage and taxes.” But what if you’ve been making payments on the mortgage for 25 years, and you have a $50,000 down payment when you look for a house of your own?
It seems that many people are unaware of the real cost of owning a home and the associated expenses that are not only difficult for most to handle, but in some cases, they are out of reach and are too expensive to handle.
What is the down payment?
In addition to the down payment or the balance as it’s usually referred to, there are several other factors that you should consider in determining how much of a down payment you should have. In determining the down payment that you should have for your home, you should consider your ability to pay all the expenses associated with the purchase.
Most often, people buy homes in their 20’s, 30’s and even in their early 40’s. But before you put down your 20 or 30 percent deposit on a house, you need to think about all of your future expenses.
A 20-year loan should not exceed a 7 percent interest rate. So with a 20-year loan, you should put down between 3 and 5 percent. On a 30 year loan, you should put down between 3 and 5 percent. A 40-year loan should not be more than a 7 percent interest rate. So with a 40-year loan, you should put down between 3 and 5 percent.
Other considerations that you should keep in mind as you look for your dream home are:
– you will need to get a better rate of return, and in general you should expect a higher rate of return on the equity in your home
– you should pay off all your credit card debt, mortgage and any other loans owed by you;
– you should take care of any debts (including car loans, any medical bills, and all other loans that you have outstanding)
– the mortgage company that you deal with should have excellent customer service and be able to provide you with information in good time
– you should look into your local area (in terms of housing prices) and your ability to buy with a low down payment;
– how much are you willing to pay in closing fees?
In addition to looking at the expenses you will have in the future in paying for your home on a monthly basis, a good home loan originator or mortgage broker will also help you with this process.
You can start by researching the interest rates and other factors involved in the decision-making process. It’s always better to know your situation before you settle down for the long term.
What are the factors involved in determining the down payment?
There are several factors that you should consider when you are looking to purchase a home. The most important factor is the amount of money you have to put down as the down payment.
You could find out from your bank or mortgage company what the minimum down payment is that the bank is offering. You should also check with your local or State Department of Financial Institutions. In most states, you need a minimum down payment of 3%.
Another important factor that you should consider when determining the amount of the down payment that you should put down are the expenses and the interest rates that you will have to pay each month.
Many people are surprised that they will have to pay the interest on the mortgage. But you will have to pay the interest on your mortgage, mortgage company and your fees associated with the transaction.
In addition to having to pay mortgage and other associated fees, you will also have to pay property taxes on your home. The taxes are often the biggest expense associated with purchasing a home. Many people get the impression that they don’t have to pay the property taxes. However, it’s a fact.
The mortgage can increase if you have a low down payment. If you have a low down payment, you will have to put more money down on your loan and it can put you in a higher interest rate.
The higher the down payment, or the lower interest rate that you have to pay, the more you will enjoy the benefits of owning a home.
A $200,000 loan, with a 5% down payment and a 20 year term, with 7 point interest rate will cost you $4,500 up front and the remaining $4,200 will be the monthly payments on the loan.