What exactly is a “Down Payment”?
We see this term all the time and for many, they have no idea what it is, let alone an amount.
Very simply, down payment is an amount required by the lender, to be paid up front, based on your loan type. Remember, loan type? You don’t normally see a down payment amount because it varies according to your loan type. We can’t really advertise a down payment amount because it is not going to be the same for everybody. There are too many variables and it confuses everyone.
For this writing we are going to assume you are going to get an FHA loan. This loan type has less restrictions and is usually the most popular in our area.
Currently FHA requires a 3.5% down payment. Meaning, if you are applying for a $200,000 loan, FHA requires that you pay down, 3.5% of the loan amount. We are going to use the sales price instead of the loan amount because the loan amount is a whole other topic. If you are purchasing a $200,000 home, your down payment at 3.5% will be $7,000. There are a few ways to get around having to pay this yourself. Again, it will depend on your loan type. This is something we would need to discuss, to see if any of the loan types available that offer down payment assistance would work for you. All of these programs have specific rules and regulations and we would have to see if your circumstances would fit.
Down payment and closing are 2 TOTALLY separate items. Yes, there is closing cost in addition to having a down payment. But, stay with me here, it may not be as bad as you think.