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What You Need to Know about Down Payments

Many Idaho home buyers don't fully understand down payments and how they can affect your monthly payment and interest rate. A down payment is the initial investment you make in your home. It must come from funds readily available to you (not borrowed) or a family member who is gifting the funds to you for this purpose.

A down payment is made at the time you close on your Idaho mortgage loan, and usually ranges from between 5 and 25% of the purchase price of the property. A down payment of less than 20% of the purchase price of the home means that you'll need to carry private mortgage insurance (PMI), and this will increase your monthly payment.

For Idaho home buyers who make a down payment of less than 20 percent of the purchase price, a high-ratio mortgage is used. Home buyers must carry PMI, although the loan can be refinanced or PMI dropped after the borrower accumulates 20 percent equity in the property.

A conventional mortgage is used when the borrower makes a full 20 percent down payment on a property. Interest rates are typically lower with conventional mortgages than with high-ratio mortgages.