Most mortgage lenders expect you to put down some cash on your home purchase. Generally, the
down payment is 5 percent, 10 percent or 20 percent of the sale price. The more money you
put down, the lower your mortgage payment, or the more house you can afford to buy.
Some lenders will overlook past credit blemishes and not verify your income and other
financial status, if you have 25 percent to 30 percent for your down payment.
Tip
Be sure to have your down payment ready at least 60 days before you apply for a mortgage
loan.
Example
Let's say you make $40,000 a year. Your maximum monthly mortgage payment (28 percent of
gross income) would be $933. Assuming your total monthly debt is no more than $1,200 (36
percent of gross income), the bigger the down payment, the more expensive the house you can
buy.
For instance, let's say the monthly mortgage payment of $933 has an interest rate of 7.5
percent. In a 30-year fixed-rate mortgage, that monthly payment covers a total principal of
$133,435.45. With 10 percent down, that mortgage would cover a house worth $148,262. With 20
percent down, the house price would be $166,794.
This chart gives other examples: the house price range for a monthly payment of $1,060.
How much house you can buy depends on the interest rate and the size of the down
payment.
| 30-Year Mortgage |
| House Price |
Interest
rate |
Monthly
payment |
Price with
5% down
|
Price with
10%
down |
Price with
15% down |
Price with
20% down |
| 7.00 |
$1,060 |
$167,712 |
$177,029 |
$187,442 |
$199,158 |
| 7.50 |
$1,060 |
$159,578 |
$168,443 |
$178,352 |
$180,499 |
| 8.00 |
$1,060 |
$152,064 |
$160,512 |
$169,954 |
$180,576 |
| 8.50 |
$1,060 |
$145,113 |
$153,174 |
$162,185 |
$172,321 |
| 15-Year Mortgage
|
| House
Price |
|
Interest rate |
Monthly
payment |
Price with
5%
down |
Price with
10% down |
Price with
15%
down |
Price with
20%
down |
| 6.50 |
$1,060 |
$128,088 |
$135,204 |
$143,158 |
$152,105 |
| 7.00 |
$1,060 |
$124,138 |
$131,034 |
$138,742 |
$147,414 |
| 7.50 |
$1,060 |
$120,364 |
$127,051 |
$134,525 |
$142,933 |
| 8.00 |
$1,060 |
$116,757 |
$123,243 |
$130,493 |
$138,649 |
Factoring in Your Down Payment
You may now want to turn to the Bankrate.com calculator, How much house you can afford?
and factor in your down payment. If you are selling a home, you can apply the equity as a
down payment on the new house. Note: You need to include an estimate of closing costs in
buying the property (plus selling costs if you're also selling a house). Closing costs are
generally 3 percent to 6 percent of the sale price.
Ways to Accumulate a Down Payment
- Start saving as much as you can as soon as you can. If you've already talked to
mortgage lenders and they've informed you that your down payment is insufficient, make it a
priority and find ways to save money such as foregoing a new car or a vacation trip.
- If you have enough equity in your 401(k) retirement plan at work, you can borrow the
money from your account. You will be charged prime rate, with possibly a small margin added
on, and you can have the payments from this "loan" deducted from your paycheck through
payroll deduction plans.
- Borrow the down payment from family members or relatives and pay it back monthly. In
some cases, the mortgage lender will require a statement that specifies the amount of the
payment and work it into your overall debt load, unless both you and your relatives consider
it a gift.
- Investigate mortgages that are insured by the Veterans' Administration or the Federal
Housing Authority. These government agencies guarantee the mortgages and may even get you in
the house without a down payment.
|