A down payment is the amount of money a buyer pays in cash and is not included in the mortgage. A down payment reduces the loan amount needed in order to purchase a house. A down payment is not financed in the mortgage. This payment is expressed in the form of a percentage (for example, if you are purchasing a $100,000 house and you put 20% down, you are paying $20,000 up front and the loan amount will be $80,000).

Depending on the type of loan program, you will need at least 3.5% (FHA loan) to 5% (conventional loan). Only USDA and VA loans do not require a down payment.

The more money you can pay as a down payment, the less risk you pose to the lender. Putting over 20% down is seen as very little risk and will enable you to receive the best interest rates, fees, and terms. A down payment shows the lender you are serious about purchasing a home and also shows that you have a history of saving and being financially responsible. This then creates more equity in your home and increases your credit score.

While it may seem important to begin saving for a down payment immediately, we would caution you to look at how much debt you currently carry. It is more important to pay off as much debt as possible and then save for your down payment. By reducing your debt, you are freeing up more money that you can save each month and allowing time for your credit score to increase. By following this order, you will put yourself in a better position financially.

    Gershman Mortgage , Iowa