What Is A Down Payment And Do I Need One?

A down payment is the amount of money that you pay upfront when buying a home. The amount varies depending on which lender you use, but it’s typically around 3-20%. The interest rate you receive on your mortgage loan depends on the size of your down payment.

Most lenders will require a down payment when borrowing money to buy a home in California. Why? Put simply, it's to protect the lender's investment in the event that you can't pay back your loan. While most of us think of a down payment as something we save up to give to our lender at closing, this is not always the case. Let's take a look at how down payments work and what they look like in different kinds of loans.

Do I need a down payment?

The answer is yes, but it depends on the type of loan you’re getting and your credit score. For example: If you’re borrowing money from a bank to buy a home, the bank will likely require you to make a down payment. This is usually around 20% of the total price of your home or mortgage.

If you’re taking out an FHA loan (or any other government-backed loan), your lender may not require one as long as you meet certain requirements.

How much do I need to save for a down payment?

The amount you need to save for a down payment will depend on the type of loan you’re getting and how much home you want to buy. In general, if you have good credit and can afford your monthly payments, an FHA loan may be the best option for first-time buyers.

Is there a way to avoid having to save up for a down payment?

1) Not all FHA loans require a down payment, and not all borrowers are required to put down money for their mortgages. There are several loan types that do not require a 10% down payment:

• VA loans

• USDA loans

• Conventional loans with a down payment assistance program

2) If you don’t have enough money for a down payment, consider getting an FHA loan. These mortgages allow borrowers to put as little as 3.5% down on their home purchases.

What if I don't have enough saved up for the required down payment?

If you don’t have the required down payment saved up, you may be able to get a loan with an FHA or VA loan. These loans offer lower down payments and can help first-time home buyers get into homes that might otherwise be unaffordable.

Can I use cash gifts from friends or family as my down payment? Yes, you can use a cash gift from friends or family as your down payment. In fact, most lenders will allow you to take advantage of this money if you need it for your down payment. However, there are several caveats that must be considered first:

1) The amount of the cash gift cannot exceed the maximum allowed by FHA and VA loans.

2) You must be able to prove where the money comes from and show that it is not a loan.

3) If you’re getting married before purchasing a house together, make sure that whoever is giving you the gift knows that if you end up getting divorced, they’re not responsible for paying back the money.

4) If you’re using an inheritance, make sure it doesn’t have any strings attached before accepting it.

As you can see, down payments tend to fall into one of two buckets: hard money or soft money. For those with a little bit of cash on hand, soft money options like gifts and grants are often the best bet. But for the rest of us, you might want to explore some of the harder options made possible by improving technology. After all, there's nothing holding you back from taking a risk on your dream home—it's your home!

If you are looking to buy a home, make sure that you have an idea of how much money you will need for a down payment.