November 17, 2022 · 3 min read
There's no question that saving for a down payment is essential when buying a home. But how much should your clients aim to save? And what factors influence how much they'll need? This blog post will break it down for you so you can guide them accordingly. Keep reading to learn more!
The type of home
The type of home they are eyeing to buy will significantly impact the amount of money they need for a down payment. For example, if they are looking to purchase a single-family home, they will typically need to put down 20% of the purchase price. On the other hand, for a townhouse or condo, the minimum down payment is usually 5-10%. Meanwhile, if they are interested in buying a manufactured home, the prepayment can be as low as 3%.
The loan program
The amount they ultimately need for a down payment will also be influenced by the specific type of mortgage they choose. Some loan programs may require a larger down payment than others. For example, FHA loans require a minimum down payment of 3.5%. VA loans, on the other hand, do not require any down payment at all. Therefore, it is important to consider all of these factors when determining how much money they need to buy a home.
The borrower's credit score
A higher credit score may allow the borrower to qualify for a lower interest rate, which could save them money over the life of the loan. If your clients have good credit and can qualify for a loan with a low-interest rate, then they you may encourage them to consider taking out a loan for the full purchase price of the home and putting less money down as a down payment.
The borrower's debt-to-income ratio
This ratio represents the percentage of the borrower's income that goes towards paying debts each month. A high debt-to-income ratio can make it difficult to afford a large down payment, so borrowers with this ratio may need to save for longer or look for homes in a lower price range.
Final Thoughts
As you can see, there are a number of factors that influence how much your clients will need to save for a down payment on a home. But as a general rule of thumb, most people should aim to save between 3% and 20% of the purchase price of the home.
If your clients are having difficulty saving for a down payment, there are a few things you can suggest. For example, they could look into down payment assistance programs or grants that can help with the costs. Additionally, they may be able to use gift money from family or friends towards the down payment.
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Filed Under: Education for Agents
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