Where is my money better spent if I have to make a choice, down payment or discount points? When it comes to putting a down payment on a home there are a number of different options available and each individual has a unique situation. It is best to weigh the options and determine what is going to be best for you in the long run. Different loan programs offer different down payment options:
VA Loans: 100% financing maybe available
USDA Loans: 100% financing maybe available
FHA Loans: minimum down payment is 3.5% of the sales price to FHA’s county maximum. Check your local market for FHA maximum loan limits. https://entp.hud.gov/idapp/html/hicostlook.cfm
Conventional Conforming Loans: 5% down payment is the minimum required for a Conforming Loan.
Non-Conforming Loans: check with your mortgage professional (programs may vary)
3 Things to Keep in Mind:
Larger Down Payment – Just remember, the larger your down payment means the less money you have to borrow. This also means you’ll have more equity already available in your new home. This is important for borrowers in many ways, including lower monthly payments, potentially better loan terms, and the possibility of not having to purchase mortgage insurance.
Discount points – The easiest way to think of discount points is that in order to lower or discount your interest rate, you pay a premium. This increases your closing costs and may have an impact on the money you have available for your down payment. Before you agree to pay discount points, you should consult your mortgage professional about the amount of money you are going to save monthly. From there you can decide if this route will benefit you in the long run. I have written in detail on the subject of discount/mortgage points. For more information on this subject please visit my blog Mortgage Points, What Are They?
Qualifying for a Loan- qualifying for a loan can be tricky, but with the help of a mortgage professional you can look at your options and determine what will be the best way for you to qualify. In some cases you may need to work with a combination of things to fully qualify for the loan you need.
There is no answer that is right for every borrower. Many factors play into a home loan and a mortgage professional is there assist you with the decision making process by laying out your options. Never hesitate to ask questions.