How Do I Put A Down Payment On A House in Kenya?
Having a place to call home is among the items on the list of achievements for many people. Buying a house is one of the ways to own one. The process usually requires a lot of planning and getting finances together. A down payment on a house is one of the things to consider if you are going to get a mortgage.
While it is possible to purchase in cash, you may not always have enough money set aside to buy a house. In that case, finding the best mortgage plan that will not cause you financial strain and will enable you to slowly work towards owning the home you choose is an ideal option.
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Before getting started, you must research your options widely to settle for a mortgage that will offer you value for money and that you can comfortably service. You may be required to give a certain percentage as a down payment while seeking a mortgage. Read on to get well conversant with what a down payment entails.
READ ALSO: A Step-by-Step Guide to Buying a House
Meaning of a Down Payment
The down payment is the initial amount of money you will pay from your pocket, which is a percentage of the total required for purchasing a house. Usually, it ranges from 3% to 20% of the purchase price, depending on your financial capability and the type of house you are interested in.
Down Payment Calculator
A down payment calculator is a tool you can access online to calculate the amount required to make a down payment. You will need internet access on your device, knowledge of the total cost of the house you intend to acquire, the down payment percentage, the interest rate on the loan, processing fees and the repayment period in years.
You will then key in the parameters mentioned above on the formula box of the down payment calculator and get instant results on the amount you should prepare to pay. It will also display the equated monthly instalments (EMI) you will be paying after making the down payment.
For instance, for a house worth Ksh1 million requiring a 3% down payment, you will need to pay 10000000.03= Ksh30,000. You would then need a loan of Ksh970,000. If the processing fee for the loan is 1% of the loan amount, that will make it 970000 * 0.01= Ksh9700. You will pay Ksh39,700 (30000 + 9700) as the down payment.
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What’s the Average Down Payment on a House?
In 2023, the average down payment on a house is about 6%. Unlike before, when prospective house buyers were required to pay a 20% down payment, today’s real estate industry has made home ownership easier through its adjustments. More options are now available, like the government-backed no-money-down mortgage, 3% mortgages and more.
How Much for a Down Payment on a House?
The down payment amount you should pay largely depends on your income, savings, and budget. You must, however, be aware that you will be advised accordingly by the lender on the loan amount and mortgage type you qualify for based on the amount you are willing to give as a down payment. A smaller down payment and a larger one have advantages and disadvantages. Therefore, the best thing to do is exercise moderation when deciding on the down payment amount.
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Can You Finance a Down Payment on a House?
Saving up for your down payment is an option that some have. To others, however, it is a stressful process that may take so long. The uncertain future may mean these people’s dream of owning a house remains far-fetched.
Depending on your location, you could easily gain from down payment assistance loans and programs offered by the state and local government and private and non-profit organizations. You should check if you qualify for assistance like grants, forgivable loans, deferred payment loans, low-interest loans, and matched savings programs.
A down payment is not just money you pay without looking at every other aspect, good or bad, surrounding a house purchase. It would be best if you made proper calculations to ensure you save as much as you can and not lose your hard-earned money.
What Are the Disadvantages of a Large Down Payment?
Not many people can afford a sizeable down payment. Giving a massive sum as a down payment may mean tying down vast sums of money, and sometimes this may threaten your liquidity in the long run. If the house you buy loses value, your investment will also decrease.
What Is the Disadvantage of a Lower Down Payment on a Home?
Giving a small down payment will mean getting a higher Loan to Value Ratio (LTV), Paying a higher interest rate and most of the time, you will be required to take private mortgage insurance to protect the lender in case of failure to make payments.
READ ALSO: Can You Buy a House if You’re Self-Employed?
In Conclusion
A down payment you make on the house determines how affordable your overall mortgage is going to be. Generally, large down payments are just as good as an excellent credit score. It helps lower the overall cost to borrow as lenders will give you a lower interest rate loan.
People buy houses for investment or to make their permanent residence as they raise a family. Whatever the reason, finding the right home will go a long way in ensuring you achieve your goals. This buyrentkenya.com article helps you identify the right property and avoid costly mistakes.
