Buying your first home in the beautiful Pacific Northwest is likely to be one of the most exciting experiences of your life. As a first-time home buyer, it is a major life decision that will require a lot of time and research to get it right.
Fortunately, there are many resources available for first-time home buyers that can help you find the best home for your needs and qualify for a home loan that fits your budget and lifestyle.
One of the biggest questions you might have is: How much will you need for your down payment? That’s a good question, and several factors can impact your upfront costs.
Here are four key factors to consider that can affect the amount you will need to put down as a first-time home buyer.
1. The Sale Price of the Home
The biggest factor that will impact the size of your down payment is the sale price of the home. Most lenders will require that you put down anywhere from 3% to 20% of the total sale price. That is quite a large range! For example, for a $250,000 home, your down payment could be anywhere between $7,500 and $50,000.
The closer you get to a 20% down payment, the more attractive you are likely to be as a buyer. But as you will see, there’s often flexibility for first-time home buyers who don’t have that much saved up.
2. Your Ability to Qualify for Government Home Loans
Your credit score is a major factor that can influence your ability to qualify for a home loan. A score over 700 will give you ideal mortgage pricing.
However, there is a common misconception among first-time home buyers that you need a perfect credit score to purchase a home. In reality, several options exist for buyers whose credit scores are in the low to mid-600 range.
If your credit isn’t ideal, government loan programs may help:
- USDA Loans: If you are considering a home in a rural or suburban area, you might qualify for a U.S. Department of Agriculture (USDA) home loan. About 97% of land in the country is eligible.
- VA Loans: If you are a Veteran or currently serve in the U.S. military, you could qualify for a VA loan, which often requires zero down payment. While VA loans still have closing costs, many mortgage companies offer lender credits to reduce or eliminate these costs. In general, VA borrowers have very little out-of-pocket costs when purchasing their home.
- Other Low or No Down Payment Options: Several programs exist for first-time home buyers that require minimal down payments. Contact your loan officer for details on these programs.
3. Additional Closing Costs
Many first-time home buyers focus only on the down payment, but closing costs also need to be covered. These costs can include:
- Loan origination fees
- Title and appraisal fees
- Prorates and prepaid escrow items
Some mortgage companies, like DC Lending, offer lender credits that can help reduce or eliminate these costs. For VA and FHA loans, lender credits can allow for little to no out-of-pocket fees outside of your down payment.
Additionally, don’t forget to budget for moving costs. A long-distance move can significantly impact your savings for your down payment and closing costs.
4. Your Current Income and Expenses
Perhaps most important of all is your current income and expenses as a first-time home buyer. These will determine your home-buying budget.
- If your income is high, you may qualify for a larger loan, allowing you to afford a higher-priced home.
- If your income is lower, a larger down payment can help reduce monthly payments. However, saving for a larger down payment can be challenging.
Planning ahead and considering these factors before starting your home search can make the process smoother and more affordable.
Final Thoughts
Calculating the ideal down payment for purchasing a home can seem complicated as a first-time home buyer. However, it mostly comes down to the four key factors outlined above.
If you are searching for a home loan in Vancouver, WA, or Portland, OR, and need assistance finding homes that fit your budget and lifestyle, contact DC Lending, a Vancouver-based, family-owned mortgage company.
DC Lending NMLS#1773532