Down Payment Doesn't Have to Be a Dirty Word; Check Out the Latest Trends

• Author: Margaret Hills
• Posted: 2024-05-13

No one said that it's easy buying big stuff these days, but the down payment can become a key player in your financial transactions. When it comes to purchasing a home or a vehicle, the down payment can help you achieve your dream of ownership. There are programs out there to assist you based on what works best for your situation.

 

Defining the Down Payment

There probably isn't a person on the planet who enjoys getting socked with the interest they accumulate when taking out a loan. For many folks who want to buy a pricey item such as a home or car, they pay a down payment upfront. This serves as a percentage of the total purchase price, and the balance is usually financed.

A down payment does basically two things. First, it can reduce the amount you will owe to the lender. Second, a down payment can reduce the interest you will shell out over the long term.

 

Fannie and Freddie Are Talking

When buying a home in the United States, a 20% down payment has always been the norm. In 2023, Fannie Mae and Freddie Mac set down some new rules. The minimum down payment is at 3%. Fannie and Freddie are government-sponsored entities. Their role is to make mortgages more affordable.

Also, the minimum down payment on a Federal Housing Administration or FHA loan (low- to moderate-income families) in 2023 is 3.5%. This type of loan can be great for first-time home buyers and home buyers who might not qualify for a mortgage because of income or past credit issues. The FHA is part of the Department of Housing and Urban Development or HUD.

Consider meeting with a HUD-approved housing counseling agency for some personalized advice. You can find a counselor by your five-digit zip code here.

 

Getting the Vroom-Vroom on Car Payments

When you go to buy a vehicle, there isn't a minimum down payment, but like a home purchase, the 20% down amount is the standard. Of course, it's up to the buyer, but experts say that if you plunk down 20-25%, you can get the best rates and terms from lenders.

Some car dealers lure buyers into the dealership by offering 0% down for those who qualify. However, while you don't have to make a down payment there, the lender may get you in the end by charging a higher interest rate. If you can boost your credit score to 680 and higher, you have the best chance of getting your vehicle with no down payment. Or consider a co-signer to go in on your loan for a zero down payment.

According to MarketWatch.com, the cost of a new car has stabilized. In April, Americans paid $48,275 for the average new car. So, how much car can you afford? Take your time, do some research, and consider this professional advice here.

 

Tips on Saving up for Your Down Payment

Many individuals want to start saving before they begin buying, and financial experts have some recommendations. For instance, one way to do this is to go to the bank, and open a separate account for down payments. This will keep you in check so that you don't start using the money for other things. You can chart your progress through this separate account.

Next, look at your monthly spending and determine how much you can afford to spend each month. Make a plan, and calculate a range of down payment options to see how this would work when purchasing a home, for example. Figure in the closing costs, etc.

Then, look at your paycheck to determine if you can make regular deductions for your down payment account. You could have the funds automatically transferred so that you stay on track of your goal.

It all boils down to the Federal Reserve's aggressive fight to stop inflation. When interest rates rise, this affects just about everything and everyone. From home loans to auto loans to credit card rates to car insurance premiums and a lot more, it all adds up. The American consumer feels squeezed and is looking for relief.

Hang in there because it isn't over yet. It appears that the Federal Reserve will raise rates by another 0.25% at its July 26 policy meeting. Now is the time to improve your credit score. Start saving for a down payment to boost your odds of qualifying for the lowest rate available.