Down payment

Down payment
By Bankrate.com



The down payment presents the biggest obstacle to homeownership for most buyers, especially first-time buyers and those in lower income brackets. Fortunately for those people, lenders have become more willing to underwrite mortgages with small down payments.
Most mortgage lenders require a cash down payment of 5 percent, 10 percent or 20 percent of the sale price. Some lenders have zero-down mortgage programs. If you can put down more than your lender requires, say 25 percent to 30 percent, your lender may be willing to overlook past credit blemishes, approve your loan without verifying your income or both. If you come up short on the down payment, less than 20 percent of the buying price, you may have to obtain private mortgage insurance, or PMI, to protect the lender before your loan is approved.
You can often lower your mortgage payment or afford a more expensive house by putting more money down.
Lowdown on down paymentsSay you make $40,000 a year. Your maximum monthly mortgage payment (28 percent of gross income) would be $933. Assuming your total monthly debt is no more than $1,200 (36 percent of gross income), the bigger the down payment, the more expensive the house you can buy.
For instance, say the monthly mortgage payment of $933 has an interest rate of 7.5 percent. In a 30-year fixed-rate mortgage, that monthly payment covers a total principal of $133,435.45. With 10 percent down, that mortgage would cover a house worth $148,262. With 20 percent down, the house price would be $166,794.
Say you want to keep the monthly payment to $1,060. How large of a mortgage can you get? The charts below consider the key factors of interest rates, down payment amount and the length of mortgage term.

Questions about Homeowners policy

1. Can I drop my homeowners policy? If you have a mortgage, the answer is probably "no." Because you have a lien on the property, most home loans require you to have coverage that the lender finds suitable. If the policy lapses, you can be in mortgage default. If you are having trouble finding an insurer or paying the premiums, call your lender to see if it can offer suggestions and/or work with you to solve the problem.
2. Can I afford to regularly put money into an account to cover any storm damages? This is a necessity if you're going to drop your insurance coverage. Without the emergency self-insurance account, you'll either be stuck not making repairs, borrowing money to make them or putting them on credit cards, which could create additional problems.
3. How large should my self-insurance account be? Sit down and do a worst-case scenario in the event of a natural disaster. Consider what it will cost to repair or replace your home or major parts of it, such as your roof or walls that are more exposed to potential damage.
Then there are your belongings: furniture, clothing, food, exterior buildings, landscaping, and potential costs of debris removal or demolishing partially standing structures that need to come down for safety reasons.