Down Payment Options

Mortgage down payment options are important when deciding on a mortgage. When buying a new home it is important to understand your down payment options, and the consequences that each down payment will have on your final loan amount, interest rate and mortgage monthly payment. You can also use a Gift of Equity as your down payment.

Here is a synopsis of the various California loan programs:

Conventional Mortgage– Many homeowners don’t understand just what this is. A conventional home loan is normally where you put 20% down and it is able to be sold to Fannie Mae Home loans  or Freddie Mac Home loans.

VA Mortgage is a 0% down payment loan program. You cannot have enough assets to qualify for an FHA loan (3.5% of the loan amount). The property you are buying must be in a rural part of the country and you can only earn up to a maximum income in order to qualify There is a 3.5% fee added to the loan amount, but that fee can be financed as part of the loan. There is no extra monthly fee. – see   VA Loans.

FHA is a 3.5% minimum down payment loan program and can be used anywhere in the USA.  There is a maximum loan amount available depending on the county you are buying in. The maximum loan amount is arrived at by the medium average of homes sold in that particular county. There is a 1% fee added to the cost of the loan and an extra monthly mortgage payment fee. – see FHA Loans

Neither FHA or VA are credit score driven. VA Mortgages do have a minimum of 640, but FHA borrowers can have very low scores and as long as they can prove they have enough income to make the mortgage payment, they are eligible to qualify.

There is a discount in the extra monthly mortgage fee on a FHA loan if your down payment is 5% instead of 3.5%.

FHA is probably the best option if your chosen down payment is under 10% but greater than 3.5%.

If you can put 10% down, then a CONVENTIONAL MORTGAGE loan is probably best. There are options available with a 10% down payment so that you can minimize the extra monthly mortgage fee, also known as the mortgage insurance fee. . Nevertheless, with 10% down, FHA and USDA are not as beneficial an option. This is best explained in the 10% down payment article.

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If you want to pay a 10% or 15% down payment, mortgage insurance will be a mandatory charge to your monthly payment unless you choose a lender paid mortgage insurance option as explained in the 10% down payment article. However, a 15% down payment will have significant benefits over a 10% down payment. Simply put, the monthly mortgage insurance fee is far less when putting 15% down than when putting 10% down.

Finally if you are able to buy a home with a 20% down payment, your loan will not have a mortgage insurance fee attached to your monthly payment. The mortgage industry rewards those with a 20% DOWN PAYMENT with the BEST RATES in the marketplace.

Other interesting facts about down payments options have to do with the type of home you are buying: Oftentimes if you are buying a second home you will have to pay a minimum down payment of 10%.

Both FHA and VA loans programs are only set up for borrowers wanting to live in the home they are buying.

If you are interested in buying an INVESTMENT or RENTAL PROPERTY it is best to put down 25%. Although a 20% down payment option is available it comes with a very steep up front price.

Expect to pay some extra closing costs if you wish to buy a second home or investment property.

The Mortgage team at

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