How Does the Down Payment Process Work in Virginia? (And How Much Do I Need?)
You and your family have made the decision to buy a brand-new home in Virginia. Congratulations! Now, you’re thinking about the next steps including making a down payment on your new home. But, how much money should you put down and how does the process work? Check out some information about making a down payment on a new home in Virginia.
How Much Should I Put Down on a Home?
Many lenders look for a down payment that is between 5 and 20 percent of the price of the home. Of course, there are several factors involved in determining how much to put down on a home. One of the factors is the price of the home and the other is the type of loan you get to finance your purchase.
Bigger vs. Smaller Down Payments
The decision of how much to put down on a home depends on many things including your personal financial situation and how long you want to wait to move into a home. Both options have their advantages.
Making a Large Down Payment
Putting a large down payment of around 20 percent on a home means you start off with a smaller home loan to pay off. Plus, you’ll pay less in interest over the life of the loan than someone who provided a small down payment. Another reason to make a large down payment is it’ll give you a reasonable monthly mortgage payment. You may have to take some time to save up a 20 percent down payment, but it's worth it if you want to keep your monthly mortgage payments low.
- You may not have to pay private mortgage insurance (PMI) if you make a large down payment
- If you apply for other loans in the future, your small monthly payment will count in your favor toward getting those loans
Making a Small Down Payment
Opting to make a small down payment is an option if you think it would take many years for you to save up 20 percent for a home. Also, making a small down payment on a home leaves you with money to make improvements to your new house.
Specific Details of the Home Buying/Down Payment Process
Think of the home buying process in stages. In the first part of the process, you agree with the seller on a price for the home. Once you do, you pay what’s called earnest money. This is a sign you’re serious about following through with the transaction. Earnest money falls in the range of one to five percent of the purchase price.
The earnest money you pay the seller goes toward the down payment you make on the home. Once your loan goes through, you pay the down payment at the closing on the home. The agent puts your down payment together with the funds from your lender to pay the seller. All of the financial details are worked out before closing day.
Resources to Consider When You Need Help Buying a Home
Perhaps you need some help with making a down payment or obtaining a loan. Fortunately, there are some resources available.
An FHA Loan
One idea is to get a Federal Housing Administration (FHA) loan. Credit unions and banks issue FHA loans, but the loan is guaranteed by the Federal Housing Administration. In short, the FHA pays the lender back if you aren’t able to.
Benefits of Getting an FHA Loan:
- You can make a small down payment
- Get a loan despite a troubled credit history
- Get into a home quicker than you would if you had to save up for the down payment
A Down Payment Assistance Grant
You may be able to get assistance with a down payment on your new home from the Virginia Housing Development Authority (VDHA). This is for first-time home buyers and there’s no repayment of this down payment assistance grant.
It’s worth your time to check out the various resources available to help you provide a down payment on your new home. Evaluating all of the available assistance can help you start your home ownership journey on the right foot!
Originally published July 31, 2019