Are you searching for a home, but concerned about how much money you are able to put down for a down payment? Saving a sufficient amount of money for a down payment is one of the most challenging issues to consider when purchasing a new home. People can often avoid paying premium mortgage insurance with a 20% down payment, but if you are not quite able to afford that, 15% down is still a decent down payment and can get you a reasonable interest rate. Our mortgage specialists at Foundation Mortgage can work closely with you to help you to decide on the best down payment amount that works for your situation. We offer services in the areas of Knoxville, Maryville, Lenoir City, Oak Ridge, and Gatlinburg, Tennessee. Contact us today to see what type of down payment is the best option for you.
Conventional Loan Basics
Conventional loans are not formally insured through the federal government, and offer many benefits for borrowers, such as great interest rates, lower costs, and term flexibility. Unlike non-conventional loans that have lower lending standards, (such as FHA or VA loans), conventional loans have stricter lending qualifications, but come with better rates and fewer obligations. Conventional loans are insured through private lenders, and government sponsored enterprises, (GSEs), like Freddie Mac and Fannie Mae set the income and down payment requirements for these types of loans. The purpose of the GSEs are to stimulate the economy by encouraging financial institutions to lend money to people who are interested in buying a home. Since conventional loans are not insured through the government, they are riskier for the lender because they are not covered in the event that a borrower cannot make payments. Therefore, if you choose to get a conventional loan, private mortgage insurance will be required if the down payment is less than 20%.
If you are unable to come up with a 20% down payment, a payment of 15% down can still get you an affordable interest rate. The higher down payment you are able to put down, the lower your monthly mortgage payments will be. It is important to note that with a 15% down payment, you will have to pay monthly private mortgage insurance, but not for the entirety of the loan. When your home equity has reached 78%, you no longer need to pay private mortgage insurance.
Requirements For a 15% Down Conventional Loan
When looking to obtain a home with a 15% down conventional loan, there are some qualifications to consider:
- Private mortgage insurance is required in case of a borrower default
- Down payment is required, (a minimum of 3% is required for conventional loans, so 15% down will get you much better rates)
- Proof of steady income and employment are required
- A credit score minimum of 620 is required. A higher credit score can get you more favorable rates
- A debt-to-income ratio, (DTI) of 45% or less
- You must reside in the home as your primary residence
Understanding a 15% Down Conventional Loan
Deciding how much money to put down on a home can be a challenging decision. If you are looking to purchase a home in the areas of Knoxville, Maryville, Lenoir City, Oak Ridge, or Gatlinburg, Tennessee, contact Foundation Mortgage today. We can explain your different down payment options, and determine which financing solution is the best for you.