Home Loan Math Is More Than Mortgage Calculators

Woman using a calculator

Figuring out the financial aspect of buying a home is more than a mortgage calculator would have you believe. Loan interest rate and monthly payments are just a snapshot of the costs of buying a home. The bigger picture is the type of home loan (or loans) that fit your finances and the effect on your down payment.

Here are few questions homebuyers commonly ask about financing a home, with answers to help clear up some home loan math.

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Can I Buy a Home with No Down Payment?

The short answer is “probably not.” But, down payment dollars aren’t as daunting as they used to be.

There are loans now that ease your down payment burden. The old notion of a required 20% down payment to get a mortgage has gone out the window (that’s 20% of the price of the house you’re buying, with a mortgage covering the other 80%).

Certain loan programs are specifically for first time homebuyers, such as an FHA loan that requires as little as 3.5% down for qualifying buyers. Additionally, certain federal and state government offerings are frequently set aside as down payment assistance. One example of a program that you may qualify for is the Federal Home Loan Bank (FHLB) Down Payment Assistance Program. These programs can change from year to year, so get help from a Capital Bank loan originator to access current programs you may qualify for.

If saving for a down payment is a struggle, alternatives may be asking a family member for a financial gift or taking a loan from your employee retirement account. You also might be able to accelerate your savings by asking for a raise, getting a second job, or selling costly items like an expensive car.

What Are the Advantages and Disadvantages of a Large Down Payment on a House?

The advantages of a large down payment is basically that the smaller your initial mortgage loan balance is, the more you’ll save. You’ll have:

  • Lower mortgage loan interest rates
  • Lower monthly payments
  • Less interest expense over the life of the loan
  • Reduced or no mortgage interest premiums

The disadvantages of making a larger down payment is that you are:

  • Tying up money you might need or you end up delaying savings and investments
  • Left low on reserve cash to cover home improvements or big expenses like replacing big-ticket utilities

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However, a large down payment means equity you can tap into by refinancing or getting a home equity loan.

We Sold Our Home. How Big a Down Payment Should We Make on a New Home?

When you sell a home and get ready to buy another, you’ll need to figure out how much of your sale proceeds to use as a down payment versus what size mortgage to get. The answer to this decision often depends not only on market conditions in your area and your current finances, but also where you are in your lifecycle.

Top Income-Generating Years

If you’ve sold a home you lived in for five or more years, you probably have a good bit of money to put into a new home. The bigger your down payment, the lower your monthly mortgage payments will be. As great as that may sound, it isn’t always the best financial decision.

If you’re in your 40s to mid-50s, these may be your top earning years. If you and/or your spouse have good incomes, a good work history, and good credit, you may be able to qualify for a large home loan. That means you can have a larger loan and retain cash in savings and investments.

For those still in their 20s and 30s, you might have student loan payments, credit card debt, or a young family to provide for. While there are costs outside of a down payment to consider, homeownership may still be in reach for you.

A Capital Bank loan originator can help you sift through a multitude of mortgage products to personalize a home loan for your current situation.

Close to Retirement

If you lived in your previous home for many years, you’re probably looking at a substantial amount of equity in your home. The ability to put that into a new home and make very low monthly housing payments is a big deal. Some people even buy their “forever home” with cash so that they have no monthly payments.

For many homeowners in America, however, their home equity is their retirement savings. If all your cash goes into a house, you may end up not being able to cover future costs. That’s why it’s often best to work with a financial advisor* to help you calculate how much you could need in retirement and how to spend or invest the money you do have. If a mortgage is advisable, our loan originators can work with you to provide great options.

Every individual homebuyer’s situation is different and finding the right mortgage package is confusing. If you’re in the market for a home loan, your best bet is to contact Capital Bank to talk with a knowledgeable, experienced loan originator.

* Capital Bank, N.A. is not a debt management, tax planning, financial planning or credit counseling service provider. The information provided is strictly for informational purposes and not meant as legal or financial advice. Please seek professional advice from an accountant, financial advisor or credit counselor.

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