CHANTILLY, VA, Mar 29, 2024—If you've purchased a home, thought about purchasing a home, or even spoken with a friend or family member who has purchased a home, then you've probably heard about downpayments. However, often we don't give much thought to what a downpayment actually is, and why lenders require one. In the following article, Scott MacDonald, President of RE/MAX Gateway offers insight.
“A downpayment protects them should you default on the loan, especially if you fail to make payments in the early years of the loan when more is owed on it,” explains MacDonald. Foreclosure, property fix-up, and resale costs could result in a loss on the mortgage loan. That is a bad situation the lender wants to avoid, so they have historically required cash down payments of 20 percent of a home’s purchase price.
However, if you purchase private mortgage insurance, the down payment requirement can drop to 5 or 10 percent of the purchase price.
“Few lenders will lend the full value of a home unless they have special guarantees, such as that offered by the Veterans Administration under its mortgage assistance program,” explains MacDonald.
Is there any time you can get a loan without a downpayment? It's rare, but not impossible.
“Builders will typically offer no-down-payment loans to sell properties in a slow-moving development or a depressed market,” says MacDonald. Desperate sellers also may commit to finance the down payment for the buyer to move a hard-to-sell home or to make a quick sale. Veterans may buy a home with nothing down through the Veterans Administration’s home loan program. And members of some pension funds also may avoid making a down payment.
For more real estate information, please contact RE/MAX Gateway at scottmacdonald@remax.net, 703-652-5777, or RE/MAX Gateway.
RE/MAX Gateway is an award-winning real estate company serving Northern Virginia and the DC Metro area with four office locations. Agents are licensed in Virginia, Washington, D.C., and Maryland.