The D-Word: What Every First-Time Homebuyer Should Know About the Down Payment

Of all the things a first-time homebuyer must prepare for when trying to secure a home mortgage loan, saving for that inevitable down payment may be one of the most essential.

If you are unfamiliar with it, a down payment (or “D-word”) is a percentage of a home’s purchase price that a buyer pays up front when closing on a home mortgage loan. In essence, it is a large chunk of money a person must pay to help satisfy the terms of a mortgage and put a lender’s mind at ease before closing.

But before we go further into the role a down payment amount can play in the home buying process, there really is no way of underscoring just how important it can be — especially for a first-time homebuyer.

The biggest and perhaps most important aspect of a down payment is the amount. Lenders, large and small, all agree that the amount of a down payment can and will play a key role in finalizing a home mortgage loan. Why, you may ask? Because a lender will often look at a down payment amount as a first-time homebuyer’s investment in their future home.

Typically, homebuyers will have to pay down payments that equal 5–25% of the total value of a home, according to Investopedia. But it really all depends on what type of mortgage you want. For instance, a first-time homebuyer may want to look into an FHA mortgage loan because they often require a minimal down payment. If you’re a veteran, a VA loan may be the way to go because it involves no down payment whatsoever.

Ultimately, the amount of a down payment a homebuyer chooses to use will have a direct impact on their mortgage moving forward. Let’s take a look at the types of down payments a first-time homebuyer can use to leverage the most out of their home mortgage loan.

A “smaller” down payment

Let’s be honest, there really is no such thing as a “small” down payment when it comes to buying a house. But, even still, it’s important to remember that putting down less money up front will likely result in more strings being attached to your home mortgage loan. Lenders will often require a first-time homebuyer to secure insurance on low down payment loans, according to the Federal Citizens Information Center publication “How to Buy a Home With a Low Down Payment.” A lender will likely require insurance for protection purposes — say, just in case the homeowner fails to make his or her payments.

“Low down payment mortgages are coming back around as the housing market improves. Buyers can, once again, get a mortgage with as little as 3.5 percent down, especially on a Federal Housing Administration mortgage. (Some government programs even offer 0 percent down mortgages)” – How Much Will That Low Down Payment Cost You?

Also, in order to be considered for a home mortgage loan with a low down payment, a buyer will likely need to prove they have enough income to support what will generally be a higher monthly mortgage payment as well as a good credit background.

A “bigger” down payment

Again, pretty much any down payment is going to be considered big — especially to a first-time homebuyer. However, as a general rule, the amount a buyer ends up putting down up front will have a direct impact on the size of their monthly mortgage payments — meaning more money in their pocket month-to-month.

“For example, on a 30-year mortgage at 5% interest, putting an extra $10,000 into the down payment will save you $9,325 in interest payments over the life of the loan.”- 5 Reasons to Save for a Big Down Payment

A bigger down payment can also mean a lower interest rate, no mortgage insurance fees, and a lender more willing to overlook credit blemishes.

The idea of a down payment, no matter the size, may seem scary, but rest assured, there are many ways first-time homebuyers can get the home they want with the money they have available.

No matter if you’re a first-time homebuyer or you’re simply looking for a low down payment mortgage, we offer a variety of programs at Blue Water Mortgage that can assist you in the home buying process. Contact us today!

Roger Odoardi

Roger is an owner and licensed Loan Officer at Blue Water Mortgage. He graduated from the University of New Hampshire’s Whittemore School of Business and has been a leader in the mortgage industry for over 20 years. Roger has personally originated over 2500 residential loans and is considered to be in the top 1% of NH Loan Officers by leading national lender United Wholesale Mortgage.