Here at RE/MAX Hot Springs Village, we have the privilege of working with all sorts of clients looking to purchase homes in our private community. Some of them are brand-new to the home buying experience. Others have bought and sold multiple houses in their lifetimes. Yet they all have one thing in common: the need for a good down payment.
We believe that, when it comes to buying a home, a down payment is your best friend. A down payment affects multiple aspects of your purchase, including:
- how much house you can truly afford
- how willing lenders will be to work with you
- your eventual interest rate and points
- your need to carry mortgage insurance.
A lot about home buying has changed over the last few decades. The one thing that has remained constant is the need for a down payment.
Zero Down Mortgages Are Rare
Whether you were interested in Hot Springs Village homes for sale or are content to live in a middle-class neighborhood in Little Rock, you would find that zero down mortgages are rare. They weren’t so rare back in the 1990s, when McMansions were all the rage. But then the 2008 housing crash occurred. That changed everything.
Mortgage lenders took a beating during the housing crash. They were also forced to change the way they lend in order to prevent a repeat performance. As a result, it is nearly impossible to get a mortgage with no money down. The only two exceptions are the VA and USDA mortgages.
Both types of mortgages are federally backed. They are also extremely difficult to qualify for. Finally, there are restrictions on the types of houses one can purchase with these types of mortgages. So unless you are an exception to the rule, you’ll need a good down payment to buy your new home.
The More, The Better
We are often asked how much of a down payment buyers should bring to the table. The standard rule of thumb is 20%. You might be able to get away with as low as 10%, but that would be pushing it. Going north of 20% would be ideal.
The more money you put down, the less you will have to borrow. Borrowing less means a lower interest rate and, ultimately, less money paid in interest over the life of the mortgage. Remember that interest is the real killer when it comes to mortgages.
If you are interested in learning more, try our free mortgage calculator on HotSpringsVillageHouses.com. Randomly choose some numbers and calculate how much interest he would pay on a loan at 5% for 30 years. Then run the same numbers on a mortgage at 8% for 15 years. You might be surprised to learn that your overall interest payments on the shorter mortgage will be less despite a higher rate.
The point here is that you want to pay interest for as little time as possible. The shorter your mortgage, the less interest you ultimately pay. The opposite is also true.
Don’t Forget LTV Ratios
A couple of months ago we published a post discussing lender loan-to-value (LTV) ratios. What does this have to do with your down payment? Everything. If your lender offers a maximum 75% LTV, you will have no choice but to bring 25% to the table.
We recommend the largest possible down payment you can afford to make. Combine it with a purchase price you don’t want to exceed. Stick to both and you’ll find yourself in a very good position to buy a Hot Springs Village home.