A home is an expensive purchase — and it’s not something that you should rush. Like any other investment, buying a home requires downpayments. However, there’s more to it than just writing a check.
To take on this journey safely, it is best to understand first how home downpayments work. Here is everything you need to know.
What is a downpayment?
A downpayment is a required, upfront payment you need in order to buy a home, car, appliance, or any large assets. The downpayment amount is based on a portion of the price that you must pay directly, most are marked at 20%. The source of downpayments is mostly from savings, credit card, or check.
Oftentimes downpayments are part of a long-term housing loan. Although there are still cases when downpayment is not required.
How much do you need to pay?
It is up to you how much downpayment you are willing to make. In buying a home, it is better to pay higher downpayments. This can cut down the remainder of your future bills. In the end, it still depends on your financial capacity. It always helps to list the pros and cons of each payment schemes.
If you can’t satisfy the required downpayment, there are mortgage companies that can take smaller amounts. You can also research on companies that are supported by the Federal Housing Authority.
When do you need to give the downpayment?
Fortunately, you don’t need to give full downpayment all at once. You can arrange it in two or three installments. Upon signing the contract, you need to make the first payment. This is called an “earnest money”. Then, you have to give the final payment during the closing.
To determine the earnest money, you should allow about 1 to 3 percent of the home’s purchase price. Take note that newer, custom-built homes require higher earnest money. These kinds of properties can go up to 10% of the purchase price.
What happens if you don’t buy the house?
There are times when a sale doesn’t push through, even if the contract is already signed. Once you back out from the deal, you will most likely lose your earnest money.
However, there are still cases when you can get your earnest money back. Sample scenarios include when the seller withdraws the property from the market, when the property fails an inspection, or if you are unable to get a mortgage.
You can also refer to your contract, it will state whether or not you are eligible to receive a refund. Make sure to talk to your agent or lender regarding the laws applicable to your area.
Whether you are a first-time homebuyer or not, you can avail of downpayment assistance from the government and different agencies.