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Conventional Loan Down Payment And Interest

Conventional Loan Down Payment

A conventional loan down payment is quite important from a lending institution perspective. This is because, they don’t have the “Full Faith And Credit Of The United States Of America” standing behind the loan.  They are absorbing the risk themselves and that changes things a lot.

Lending institutions such as banks see the down payment as a part of their business plan.  It is what is called “risk mitigation.”  The way your lender looks at it is that the more money you put down, the less likely they will need to foreclose against your property.

In your lenders viewpoint, someone with no money or a trivial amount of money in a property is likely to walk away and they the lender has all kinds of headaches dealing with the situation.

Consequently, they want to see anywhere between 5% and 10% of the purchase price put up by the buyer as a down payment.  Very occasionally, you once were able to get a conventional mortgage with 2% down but I haven’t heard of any of those in years.

For a $100,000 home, you can expect to put $5,000 to $10,000 into the down payment.  More would be better.

The size of the down payment will directly affect your interest rate.  If it doesn’t look somewhere else for your money.

Conventional Loan Interest Rate

Conventional interest rates are determined by primarily four factors:

  1. Your Credit Score – The higher your credit score, the lower your interest rate should be.
  2. Your Down Payment – The lower your down payment the higher your interest rate will usually be.
  3. How well you market yourself – If you deal poorly with problems in the past or give the impression that you have no future worth mentioning, your lender will see things like that as negatives and see you as a higher risk of foreclosure.  Always look at yourself as a lender sees you.  Try to understand your perspective.  Doing so may save you thousands of dollars in interest over the years.
  4. Most interest rates are pegged to the rate for Mortgage Back Securities or some other commonly accepted standard such as U.S. Treasury 20-year Bond rates.  The first 3 items in this list will cause your lender to give you an interest rate above that base according to how much of a foreclosure risk they see you as being.