Home Loan Types: Required Down Payments

Home Loan Home loans let people borrow money to buy a residential property. Such financing options cover the big part of the home’s amount, and the balance via a down payment.

Like its interest rates, down payments vary depending on home loan types.

Fixed-Rate Mortgages

In a fixed rate home loan, the interest rate stays the same for its entire duration. Lower interest rates and protection from inflation are among its advantages. One of its big disadvantage: borrowers tend to pay longer for the interest.

For down payment rates, it can range from 5% to 10% and an option to go for 20%. Below 20% down payments would require borrowers to buy mortgage insurance.

Adjustable Rate Mortgages

ARM features both fixed-rate and adjustable rate mortgages. Lenders can offer the fixed-rate mortgage from three years to ten years. Afterwards, the rate can be adjusted based on the one-year amount of Treasury bills, index, and margin. A cap applies both for the fixed-rate (which is higher than the subsequent rates) and the amount the rate can change over the life of the loan.

Required down payments can start at 5% up to 20% and more (optimal). ARM works for borrowers that want the best short-term rates during the initial rate period. It also keeps monthly payments low and offers an option for refinancing existing mortgages.

Jumbo Mortgages

It is a type of home loan where buyers can pay only the interest rates during the initial loan period, which is set within three years, seven years, and up to 10 years. Subsequently, an adjusted interest rate per annum applies. It is also the time a borrower starts to pay the principal and the interest.

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Buyers of affluent homes but with no fixed income can take advantage of interest-only loans. Higher purchase limits, competitive rates, and second mortgage are a few of its advantages. Since mortgage insurance doesn’t apply to this type of loan, it would require at least a 20% down payment.

Down payments are main requirements for obtaining home loans, Utah’s Altius Mortgage Group states. Some assistance programs offer low-to-zero down payments for home loans. These are either backed by the federal government or made available in almost every lender in the US, Utah included.

Down payment sources include personal savings, government programs, cash gifts, to name a few. Fees and the effects of small vs. larger and bigger down payments are factors to consider.