First-time home buyers, as well as repeat purchasers, must be prepared to cover various costs during the home purchase process. Most people consider one of the largest expenses (aside from the mortgage) to be the down payment. In certain circumstances, it is possible to purchase a South Carolina home without putting a lot of money down.
The idea of making a down payment makes a lot of potential buyers hesitant to make an offer on a home. There are misconceptions associated with the down payment process, including but not limited to how much of a payment is required. You might be surprised to learn that there are ways to buy a house without a lot of cash up front.
What is a down payment when purchasing real estate?
When you make a down payment on a home, you’re putting cash in toward the price of the house. Once your payment is deducted from the agreed-upon price, the amount leftover is how much you still owe on the home. This is typically the amount you would ask a mortgage lender to cover, after which you would begin making monthly payments (mortgage) to pay the lender back.
You do not need to put down 20 percent
Many people shy away from the housing market because they mistakenly believe that they must pay 20% of the total price of the home as a down payment. While there are several benefits to making a substantial payment like this, it is not required. In fact, in some cases, such as for veterans of the U.S. military who are acquiring government-backed loans, a down payment is not necessary.
If you’re a first-time home buyer, you might be able to purchase a home in South Carolina with a down payment as low as 3 percent. If you do this, however, you should expect monthly mortgage payments to be much higher than they would if you’d put 10% or more down on the home. It’s always best to discuss such issues with a financial adviser ahead of time.
What are the benefits of more money down?
If you make a large down payment on a new home, you might be able to secure a lower mortgage interest rate. This means that more of your monthly payment goes toward the principal of the loan and less goes toward covering interest fees. Lower down payments can result in higher mortgage interest rates, which means it might take longer to pay off the loan.
Putting more money down also helps build up equity in your home a lot faster than a lower down payment might. To determine how much equity you have, take the value of your home and subtract the amount you still owe on the mortgage. The more money you put down on a house, the less you owe, which means you will have greater equity. Always consider all options and learn as much as you can about down payments, equity and mortgage loans before buying a house.