A home is one of the biggest purchases you’ll make in your life, and very few of us have all of the money it takes to buy it outright. Thankfully, that’s where your mortgage comes into play. By signing a mortgage loan with a bank or credit union, you’ll be able to receive the funds necessary to purchase the home. Then, you’ll make payments over a period of time until you’ve paid the lender back, along with interest.
The down payment is the amount of money you spend upfront to purchase a home. Your down payment, credit score, credit history, and annual income will influence the kind of home loan you’ll be qualified for. The minimum down payment for most banks is 3.5 percent, and to receive a conventional loan, such as a 30-year fixed mortgage, you’ll typically need to have five to 20 percent of the sale price in cash. The higher your down payment, the lower your monthly mortgage payment will be.
The interest rate is the cost you pay each year to borrow money for a mortgage. For the lowest monthly payments and overall price of the mortgage, borrowers should seek the lowest rate possible.