Everything You Need To Know About Mortgage Down Payments

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If you’re looking to buy a house or make a real estate investment, then you’ll come across something called a down payment. Those of you that have never encountered this term before will be confused as to what it means and why it’s important. So, here’s everything you need to know about mortgage down payments!

What is a mortgage down payment?

Down payments are payments that you make to cover some of the costs of a large purchase. With relation to mortgages, it’s basically a percentage of the overall loan that you have to pay upfront. 

For example, let’s say you want to take out a $500,000 mortgage to buy your dream home. In order to get this loan, you will need to make a minimum down payment. The amount you pay gets taken off the overall loan, meaning you have to pay the rest back in installments. 

How much do you have to pay?

This honestly depends on where you’re getting the mortgage from and how much you’re willing/able to pay. Generally, you can get your mortgage loan from mortgage bankers or brokers. Places like Evolve Bank & Trust are mortgage bankers as they handle everything in-house and will provide you with the money themselves. Brokers will act as a middle-man to help you find the right mortgage. 

Your mortgage provider will basically set the minimum rate for a down payment on the mortgage. It’s believed that the average down payment is around 5.3% of the total cost of the house. However, some people will pay up to and over 20% of the house cost – it depends on how much you can afford to pay. As long as you can afford the minimum requirement, then it’s basically up to you!

Why are down payments important?

A mortgage down payment is critical for a couple of reasons. Mainly, they’re a key factor in determining if you’re eligible for a mortgage or not. Fail to meet the minimum down payment requirements, and you won’t be able to get the loan. 

Also, down payments can influence how much money you have to pay back on the loan. A large downpayment results in smaller payments that last less time, while a small one is easier to save up for but results in a longer mortgage term. 

However, the main reason these payments are important is that they make homeownership more accessible for the average person. Instead of needing to save up tens or hundreds of thousands of dollars to pay for a home, you just have to save up enough money to cover the down payment. This means you can access a mortgage loan and get the home you’re always dreamed of. 

Final thoughts…

So, if you’re looking to invest in real estate or buy your first family home, then you need to know about down payments. The biggest thing to think about is how much you can afford to pay. Weight up whether or not you want to make a big down payment or a small one. Either option comes with pros and cons, so decide which will work best for you.