What is the Down Payment Required for a New Home?

It’s always a good idea to ask this question no matter how experienced you are as a homebuyer. Down payments are an important part of the mortgage purchase process, and it never hurts to have it clarified, especially for first-time buyers.

Most of us buy our homes via mortgages. Mortgage lenders require a down payment as a security deposit on the home loan, and the amount of that down payment matters.

While down payments are only one of many topics to investigate en route to the purchase of your new custom Florida home, determining your optimal amount will help get you and your new mortgage off to a solid start.

Here’s more on the down payment required for a new home.

It’s always good to ask 

Residential real estate markets contract and expand. Mortgage interest rates rise and fall. Buyers’ priorities and needs often change throughout their homeownership journey. A younger buyer may need to put down a smaller down payment, while an older buyer who’s bought and sold several homes may prefer using a larger down payment.

The size of the home you plan to purchase also can be a factor. Which brings us to…

The industry standard

A 20-percent down payment at closing is the industry standard. Most mortgage lenders prefer this percentage for a down payment and it’s a smart option. If you’re buying a $300,000 home and going through the mortgage approval process, your requested mortgage amount likely will be $300,000. A 20-percent down payment on that amount would be $60,000.

Here’s why it’s so important: if you make this $60,000 down payment at closing, you’ve just paid off 20 percent of your new mortgage. That also creates an favorable loan-to-value ratio (learn more about those here), which mortgage lenders like. Why? Solid down payments usually are indicators of lower-risk mortgages for lenders.

They also lower your monthly payments and help you avoid the additional expense of having to pay for private mortgage insurance. There’s even the possibility of obtaining a lower interest rate based on the prospect of a 20-percent down payment.

Another perk of a higher down payment? It makes a higher-priced home more affordable for you, the buyer.

Test-drive other affordability and financial home-buying scenarios with ICI Homes’ suite of helpful online financial tools.

Other down payment options

If a 20-percent down payment isn’t an option, don’t be discouraged. When you’re navigating the mortgage approval process, talk to your lenders about alternative amounts. Some do allow lower down payments. Ask about it.

The type of mortgage you can seek, and from whom, can help too. If you’re a veteran, or fit the criteria for certain federal loan programs, you may be able to buy a home with a low — or even no — down payment. Veterans Administration (VA) and U. S. Department of Agriculture (USDA) loan programs are two such examples.

Ready for your new custom Florida home? Talk to ICI Homes here.