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What to know about down payments

On Behalf of | Mar 4, 2020 | Residential Real Estate

Those who are looking to buy a home in Delaware or any other state may need to make a down payment as a condition of getting a mortgage. The down payment is simply the amount that a buyer contributes to the purchase price when the transaction closes. Buyers can use savings, money acquired after selling assets or other sources of funding to make this payment.

In some cases, lenders will allow gifts from family members or friends to account for some or all of this payment. Lenders might also have down payment assistance programs that make it easier for buyers to afford this cost. Mortgage companies require down payments because buyers who have spent their own money to purchase a home are less likely to default on future payments. In the event of a default, the lender won’t lose the entire amount of the purchase price.

Those who are looking to buy a home should strongly consider making the largest payment that they can afford. Doing so will increase the amount of equity that they have in their new homes. Furthermore, the ability to make a down payment is a good sign that a person is ready to handle the financial commitment that comes with owning a home. Prospective buyers are encouraged to start saving for this payment as soon as possible.

Individuals who want to buy a home will likely need to make a down payment and cover other closing costs when the transaction closes. Additional closing costs could include property taxes owed or prepaid mortgage interest. An attorney may be able to explain why those payments are due and answer any questions a person might have about them. An attorney may also help a person better understand other important residential real estate loan terms.