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Determining Your Down Payment

When you are purchasing a new home, the decision of a down payment amount can be unnerving. The good news is that a down payment depends on a variety of factors the most important being your individual financial plan. Besides your individual plan, your down payment will reflect the home prices in your market, your current income and savings, and the type of loan you receive from your lender.

To determine how much cash you should be willing to put down, let’s first say that this is a seller’s market and that property values are still on the rise in most areas. If you’re ready to buy, I believe it’s safe to assume that you’re in a good place financially. You should be able to make a minimum down payment, if not more; the current national average is close to 14-percent down.

If a small down payment is what you are leaning towards, it may be in your best interest to start lower, but not as low as the 3.5-percent required for an FHA loan. If you put 10-percent or 5-percent down up front – as necessary with most conventional loans – then you will be able to become a homeowner very quickly. Remember, it can be tempting to make your offer look better to the seller, but even if you have more than 10-percent saved up you will need to save additional amounts for emergencies and any necessary repairs or homeowner expenses.

A 20-percent down payment will come recommended by most lenders as putting 20-percent down on a house will qualify you for a slightly lower interest rate than would be applicable if you make a smaller down payment. Another benefit to mention is that you will instantly have 20% equity in your home, which you can borrow against in the future or get back as part of your profit when you sell. But, keep in mind that 20-percent of the average home price in the nation ($200,000) is $40,000. It can take years to amass that much cash and as I’ve said before, you will need additional cash for closing costs, cash reserves in case of an emergency and moving costs.

Just look at all of the details and determine what is best for you in order to follow your individual financial plan and get the home you’ve been dreaming of. If you have any additional questions about the values of your home, feel free to reach out to us at EvenBay Real Estate (330) 469-2347, we’re happy to take you through the process and help you purchase the home of your dreams.

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