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Down Payment Calculator

Home Value,
Down Payment and
Mortgage

$500,000
$500,000

10% of home value

$500,000

30-Yr mortgage at 3.75%

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pre-tax income?

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What is your total pre-tax income per year?

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What is your total pre-tax income per year?

$200,000
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Do you know how much money you
want to put towards your new home?

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How much money will you initially put down on your home?

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Money given to you to help you with your home purchase

$200,000
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Student, car or other loans, credit-card debt, etc.

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Down Payment Calculator: It’s Significance in Home Ownership

Whenever someone is applying for a mortgage, one of the most important factors is the down payment amount paid. This amount represents a percentage of the entire loan, and, in some cases, this amount is non refundable if the mortgage deal does not go through as was agreed upon.

One of the major questions people have when thinking of getting a mortgage is how much down payment for a house is sufficient. There are many ways one can go about calculating the right amount: one of the simplest ways is through a down payment calculator. These calculators are easily available online and are also very easy to use.

If you are using a conventional financier, the recommended down payment amount is usually not supposed to be less than 20% of your income. This is because that makes the loan to value ratio more than 80%. In such a situation, the lender will require that you pay mortgage insurance on your own because the risk of loss increases.

How Much Down Payment Should You Put Down?

To accurately answer the above question, you need to think about the following factors.

  • Type of loan
  • Type of lender
  • Interest rate
  • Source of down payment

There are two types of mortgages you can sign up for-- fixed rate mortgages and variable rate mortgage. With the fixed rate, you have a specific amount of money that you pay monthly and this kind of loan comes with some of form of assurance since you do not have to worry about increments in your payment. With the variable mortgage, the payments change according to interest rate and these could sometimes fluctuate or appreciate tremendously. The kind of loan will dictate the down payment amount you pay.

Another thing you must consider is the lender. Some lenders will allow you put up less than the 20% recommended down payment but as mentioned earlier, they ask you to insure the loan. With such low down payment options, the interest rates tend to be higher. The interest that the loan would accumulate over time should direct you on what kind of down payment is ideal.

It is always important to remember that your down payment dictates the amount of interest and duration of the loan repayment period.

Down Payment Options Available

There are various ways in which one can acquire down payment and these are:

  • Savings
  • Proceeds from property sale
  • Home buyers plan
  • Gifts
  • Asset sale

One of the major ways in which people acquire a mortgage down payment is through savings. These could be done either from a savings account, checking account, mutual funds just to mention a few. With savings, you need to be prepared to show the accumulation of growth towards your down payment: transfers or large deposits also need to be explained.

This happens because savings should not be borrowed and your lender will consider such funds a debt. When acquiring funds from the sale of a property, you will have to provide proof of ownership of the property sold for a period of about 3 months. Usually a sale agreement is also required, along with statements from the sale.

The same scenario would also apply if you were to sell off an asset to cover your down payment. If for example you sold your car, you would have to proof that you owned the car for about 3 months. This means that you would be required to release insurance papers, bill of sale as well as bank draft of the payment. There are various plans that facilitate buying homes and these usually come with their specific requirements.

Such plans come with a written agreement but make it easy for you to qualify you for a mortgage, even when you do not have a large down payment amount. Finally, you could raise your down payment through a gift from a friend or family member. With gifts, you will still need to prove that this money was a gift toward your down payment.

The reason why lenders are so strict on knowing the source of your down payment is because they need to ascertain that you can sustain the loan. This eliminates the risk of someone simply borrowing money for down payment purposes and giving the lender issues when it comes to payment.

Down Payment Calculations

Calculating how much down payment for a house you need to pay is not as complicated as many may assume. You can easily find a mortgage down payment calculator online and these calculators analyze based on the following information:

  • Price of the home
  • Down payment percentage
  • Loan amount
  • Number of payments
  • Interest rate
  • Repayment duration

Down payment calculators help you calculate the amount of down payment you should contribute by analyzing the total loan amount, the price of the home, loan amount and the payment duration for the loan. Other factors that also come into play when calculating the down payment is the payment method, total number of payments and the annual interest rate as well.

These calculators are pretty easy to use and you do not have to calculate anything on your own. The good thing about using a down payment calculator is that not only do you get results on the down payment, but the total calculation of principal and interest you will pay as well.

These results are usually accurate and you don’t wait long since they are immediate. Alternatively, to get a vague analysis on how much you should pay as your down payment, simply calculate the loan amount by the required percentage. If for example you are using the 20% rate, multiply this by the price of the house to get the down payment amount.

Other Down Payment Options

It is important to realize that there are no predefined rules on the amount of down payment one should pay.

There are various down payment options you can look into when looking for a mortgage and these are:

  • Zero down payment
  • Low rate down payment
  • Recommend rate down payment
  • High rate down payment

This may sound a bit unrealistic but there are zero down payments options for a certain group of people. These are not open to everyone because each one of us would dive into the option on any given day. A couple of years ago such loans were available to those who had excellent credit ratings but things have since changed and the zero down payment option is only available to low earning borrowers who intend to purchase rural homes under the USDA program.

Another group of people who can benefit from such a loan are veterans who are under the umbrella of the VA program. If you do not fall under the above categories, your best bet to getting a mortgage would be to use the low rate down payment option.

This option is ideal for borrowers who cannot come up with the 20% down payment. Depending on your financial lender, you could get a reduction and pay just 10% or even less. You will however have to deal with large interest amounts and mortgage insurance. A lot of times, people who pay low down payments take out a piggy bank mortgage to cover the extra amount needed.

This is however not a very good financial decision and is one that could lead to a financial crisis. The third group of borrowers is those who pay the recommended down payment rate of 20%. Such borrowers are in a position to avoid the private mortgage insurance mentioned earlier on and can therefore get a better interest rate and faster repayment schedule than their counterparts who paid less down payment.

The last group of people is those who can afford to pay a down payment larger than the 20% recommended amount. This is usually a good way to get through the mortgage faster and cheaper! The more down payment you pay the less interest you pay and the shorter your repayment duration. This therefore means that the last group is in a position to fully own their home faster.

Tips on Identifying the Ideal Down Payment Amount

If the down payment amount that you get from your calculation is too high for you to manage, you need to readjust your expectations and go for a home that is priced modestly. This is because you do not want to strain your finances. Buying a home should be an enjoyable and empowering process. Another thing you may want to consider is asking your lender for other options.

As mentioned earlier, there are various loan programs you could benefit from and these usually require a lower down payment amount or even in some cases, no down payment at all. In such cases, you will not be required to use a down payment calculator at all since you don’t need to pay the down payment.

These lending programs could be facilitated by the lending company or the federal government, the state or even at municipal level. Lenders who have these programs will however require that you have PMI or private mortgage insurance before they can grant you your mortgage.

With such an option you should be prepared to pay a high interest rate. It is important to ensure that your home has sufficient equity since you need to get rid of this payment. Your financiers will carry on collecting the PMI as long as you continue paying for it. Getting rid of this expense fast is therefore a wise move.

Factors to Consider with Down Payment Calculations

When calculating your down payment, you are not just looking for an amount that you can pay off and forget about the mortgage, but an amount that will facilitate your objective, which is to own a home. This therefore means that you need to ensure that your income is going to be enough to sustain your current lifestyle or at least provide the necessities.

You also need to factor in the repayment period in order to adjust with the monetary obligations that arise with time. The last thing you’d want is to get penalties for late payment or even worse loose a substantial amount of your investment. It does help to have a financial long term plan.

Getting an estimate on the down payment amount is usually the first step toward realizing the financial obligations that lie ahead, in regards to home ownership. There are various ways in which you can calculate the amount and this will be determined largely by the price of the home you wish to acquire. Ensure that you get sound financial advice from an expert, in addition to using a mortgage calculator with down payment. Always remember that your initial down payment will determine how soon you fully own your home.


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