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Six Things You Need to Know About Mortgage Down Payments

June 12, 2024

After years of renting, you’ve made the decision to explore homeownership. And while shopping for a home is an exciting milestone, navigating the world of mortgage loans and down payments can feel overwhelming. Don’t worry. We’ve taken the time to gather important information about mortgage loan down payments for you:

Here are the top six things every homebuyer should know about down payments:

  1. Understand what a down payment is and how it works:
    A down payment for a mortgage loan is the money you contribute toward the purchase of your home, usually a percentage of the home’s purchase price, and represents your initial ownership stake in the home.
  2. How a down payment affects your mortgage payment:
    Your down payment affects a mortgage loan in different ways. The larger the down payment, the lower your monthly payment will be. You will also pay less in interest over the lifetime of the loan. Additionally, your down payment will influence how much you will pay in fees.
  3. Understanding Private Mortgage Insurance (PMI):
    If you are securing a conventional mortgage loan with a down payment that is less than 20%, you will likely be required to buy private mortgage insurance. This type of insurance protects the lender in case you stop making payments on your loan.
  4. Learning the rules for using gift funds as a down payment:
    It’s important to understand your lender’s requirements if you are considering using gift funds for a down payment. These are typically a gift from family or close friends. Depending on the type of loan, your lender may require a gift letter confirming that the money is a gift and doesn't need to be repaid.
  5. Exploring available down payment assistance programs:
    Various down payment assistance programs exist, offered by government entities, nonprofit organizations, banks and even some employers. These programs provide grants, low-interest loans, or other assistance to help cover down payment and closing costs.
  6. Other considerations to keep in mind when determining your down payment:
    Having the required down payment amount is just one part of a household budget to consider. Keep in mind these other factors: additional savings for ongoing costs like repairs and upgrades and closing costs on your loan (typically 2%-6% of the home purchase price).

If you’re considering buying a home and have questions about down payments or homeownership, visit a Heartland Bank branch to speak with one of our reputable lending experts or find more information online at https://www.hbtbank.com/mortgage-loans today.

This article may reference and link to third party information that has been verified to the best of our abilities. There is no guarantee of accuracy. Heartland Bank does not endorse companies, services, or products referenced in its articles and is not responsible for the content, links, privacy, or security policies of these third parties. Information in the above article may include material from The Ascent (https://www.fool.com/the-ascent/mortgages/what-is-down-payment/#what-is-a-down-payment-and-how-do-down-payments-work), Investopedia (https://www.investopedia.com/mortgage/mortgage-guide/down-payment/#toc-small-down-payments-vs-large-down-payments), the Consumer Financial Protection Bureau (https://www.consumerfinance.gov/ask-cfpb/what-is-private-mortgage-insurance-en-122/), Experian (https://www.experian.com/blogs/ask-experian/down-payment-gift-rules/), and Nerd Wallet (https://www.nerdwallet.com/article/mortgages/how-much-down-payment-for-house).

This content is for informational purposes only. Readers should under no circumstances rely upon this information as a substitute for their own research or for obtaining specific advice from their own counsel.