Phoenix Arizona Home Mortgage: Should You Have a Down Payment

Down payments on mortgage loans used to be a really big deal. Potential home owners had to make a down payment of 20% to get into a home. Imagine trying to save $40,000 (20% of a $200,000 loan). It would be nearly impossible.

These days there are a lot of mortgage loan options that don't require such an extensive down payment. Many government sponsored loans, such as FHA or VA loans, require a down payment of 5%. There are some additional mortgage programs that allow buyers to put down even less than 5%, some programs even allow a "no down payment" option.

If it's possible to get into a loan without putting any money down, why would you want to? Well, there are several reasons you should consider a down payment:

It gives you a start to build equity in the loan. Hopefully you won't have any unforeseen circumstances, but if you had to sell your home suddenly, you'll pay about 10% of the selling price in fees. If you don't have a down payment, selling the home means you could potentially lose money. A down payment provides a little cushion of security against emergency situations.

It gives you greater mortgage options. When you have a down payment you have more mortgage programs to choose from. You can find a more competitive interest rate when you have some money to put down on the house.
It gives you better bargaining power for the purchase of the home. When it comes to extend an offer for a home, your down payment affects your offer. The buyer may see how much you plan to put down and use the information to help them choose an offer.

It can be a significant factor in qualifying for a loan. Many mortgage programs look carefully at your debt ratio, along with your savings and down payment. Having a down payment can make the mortgage qualification process easier.

Saving for your down payment can be challenging, and it's simply not possible to always have a down payment. Even when you can't save for a down payment, there are other sources you can use - for instance, some 401k programs allow you to borrow money for a down payment, or you can receive a gift of a down payment from a relative.

If it is at all possible for you to put money down on your new home, even if it's just a small percentage, you'll find that you have more options and more doors open to you.

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