New homeowners navigating a competitive market in Maryland should know the role of down payments in securing a housing loan. An upfront payment can help homeowners negotiate their loans, qualify for better interest rates, and pay less for their mortgages in Maryland.
In this article, we discuss the role of down payments for Maryland homeowners, including the amount you should put down to secure your loan and the steps you can take to minimize your down payment before moving into your dream home.
What is a Down Payment?
A down payment is a lump sum a homebuyer pays for a new home mortgage. In Maryland, it is recommended that home buyers save up at least 20% of their new home’s purchase price as a down payment.
However, the lender is ultimately responsible for determining the down payment, which can be reduced with exceptional credit scores, negotiations, or by qualifying for other loans. The Federal Housing Administration (FHA) and Department of Veterans Affairs (VA) offer loans for new homebuyers in Maryland that can reduce their down payment.
In some cases, new homebuyers can qualify for a home mortgage loan with a 0% down payment, though this is rare. The goal is to reduce the down payment as much as possible using these essential strategies for new homeowners.
Steps to Reducing a Down Payment
In addition to applying for loans for federal housing aid, homebuyers in Maryland can reduce the amount they need for their home mortgage by following these steps:
Apply for Pre-Approval
New homebuyers can apply for pre-approval for their mortgage loan in Maryland to receive a pre-approval letter. This letter demonstrates that they have the income, credit history, and responsibility to take on a new mortgage loan. Agents, lenders, and sellers often prioritize buyers with these financial qualifications.
To apply for pre-approval, fill out the application with a mortgage lender, such as a bank or other loan office. They will examine your tax returns, bank statements, and monthly salary records to determine your approval status.
Compare Locations
To minimize your down payment requirements, compare the pricing trends in different areas of Maryland to find a location that makes sense in your financial situation. Typically, homes closer to city centers or bodies of water sell for more, increasing the value of a potential down payment. In a more rural area, a larger home may have the same or even lower down payment, making it advantageous for Maryland homebuyers to compare different areas.
Apply for Down Payment Assistance
In addition to FHA and VA loans, homebuyers in Maryland can apply for down payment assistance via several sources of aid, including:
- Grants: Unlike mortgage loans, grants can cover your down payment without needing to be paid back. Buyers should search for eligible grants in their area to reduce their down payments.
- Deferred loans: Loans with deferred payments offer buyers a fixed interest rate that covers additional purchase costs, including the down payment and closing costs. These loans defer repayments until after the home is resold or refinanced, lowering your responsibility for a down payment on the initial purchase.
- Forgivable loans: These loans are second mortgages that usually come with low or zero interest without requiring payments until the owner has lived in the house for a certain period, usually 5 years. However, lenders can extend forgivable loans up to 20 years for qualifying buyers.
Hire an Experienced Agent
The median price of homes in Maryland has been increasing around 2.5% per quarter and now sits at around $420,000. This makes it more important than ever to seek professional advice on the market options in your budget and minimize the amount you need for a down payment.
The right agency can leverage years of experience in the Maryland housing market to help you apply for pre-approval, negotiate loans, and calculate down payments.
Consult a Professional to Lower Your Down Payment in Maryland
When applying for new mortgage loans in Maryland, new homeowners face long-term uncertainties in a changing housing market. The down payment, or the amount that home buyers need to put down on their new loans before they can buy the house, tends to be 20% of the purchase price.
However, many factors can affect this amount, including lender’s discretion, your eligibility for federal assistance, your pre-approval status, and the home’s location. Contact our professional team at Woodsboro Bank to learn how we help Maryland homeowners lower their down payments and get the mortgage loans they deserve in an uncertain market.