If you have VA eligibility, you may be able to purchase a home with a minimal down payment. VA loans are for those who have served in the military. You don’t necessarily need to have served active duty. (For more on VA loans go to http://www.benefits.va.gov/homeloans).
FHA loans require a 3.5% down payment. For example on a $250,000 home, the down payment would be $8750. Lets assume that you decide to save an additional $5000 before you purchase a new home. In this scenario, your down payment will be $13,750.On a 4.25% interest rate, the additional $5000 is a savings of approximately $29.00 per month on your monthly mortgage payment.
If you would prefer to have the lower monthly payment by putting a larger down payment on your home, you also must consider how long will it take you to save this amount. If the interest rate increases, your monthly mortgage payment may not be lower. Although there are extended interest rate lock-in available, most interest rates are usually locked in for a period of 60 days. This means that if you settle after 60 days of locking in to an interest rate, your rate will be what the market rate is on that particular day.
If you purchase a new home, the builder will typically require you to settle when the home is complete. Sometimes you can purchase a home that is ready to be moved into, known as an inventory or spec home. If you don’t want to settle on the new home until you can save more money, the builder may not allow you to purchase this particular home.
If you need to save money and are looking to purchase a home that will not be complete for several months, many times the builder will work with you. They may put you on a payment plan, that allows you to save money while your new home is being built.
I have found that some new homeowners prefer to use some of the money that they can save for furniture, moving costs, etc. If they have extra money during the year, they may put some towards the principal amount of the loan. This will allow the mortgage to be paid off quicker.