Are you ready to buy a home and wondering much down payment you will need to buy a home?

What is a down payment? A down payment is a percentage of the purchase price of your home that you pay in advance when you close on your mortgage.

Don’t forget to weigh these following factors:
• If your lender will ask you to pay for private mortgage insurance (PMI). Typically, you will need PMI if you are putting down less than 20% of the home’s purchase price.
• Your interest rate. Your lender will often offer you a much lower rate if you put down a larger down payment. The larger the down payment, the better the rate possible.
The down payment depends on the purchase price of your home and your loan program. Different loan programs require different percentages, which may range from 3% to 20%.
Loan to value
The amount of your down payment helps give your lender the loan-to-value (LTV) ratio of the property. LTV ratio is one of the main factors, along with the debt-to-income ratio and your credit score, that a lender takes into consideration when deciding whether or not to grant you credit.
Your loan-to-value ratio shows how much you will owe on the home after the down payment and is expressed as a percentage that shows the ratio of your home’s outstanding principal to its appraised value. The higher the down payment, the lower the loan amount and the lower the loan-to-value ratio.
Private Mortgage Insurance (PMI)
If your down payment is less than 20%, your loan-to-value ratio for conventional financing will be greater than 80%. In this case, your lender may ask you to purchase private mortgage insurance because they are lending you more money to buy the home and increasing the potential risk of loss in the event the loan becomes delinquent. Private mortgage insurance will increase your monthly payments.
When thinking about how much to invest in your home, think about your lender’s requirements and what a higher or lower down payment will mean to you. Knowing the financial consequences of every choice can help you make a decision with confidence.

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