The down payment is one of the most important aspects of the home-buying process. Generally, you want to have at least 20 percent of the sale price to get the best loan terms and interest rates. As of late 2012, the national median price for a single-family home was $186,100, according to Business Week. If you have $100,000 to put down on a home, you are well-positioned to get a significant loan amount.
It's important to know how much of a mortgage you can afford when house-hunting because it determines your buying power, or the maximum sale price you are qualified to bid on. Your buying power depends on three things: the size of your down payment, how much a mortgage lender is willing to let you borrow and your credit situation, according to the National Foundation for Credit Counseling. In general, the higher your down payment, the stronger your buying power.
To figure out the maximum mortgage amount you qualify for based purely on a down payment of $100,000, use two simple calculations. First, divide the down payment amount by the percentage you are required to put down by your lender. Then, subtract the down payment of $100,000 from the answer. For example, if your lender wants a 20% down payment, divide $100,000 by .2 to get $500,000. That is the price of the home, but because you are putting $100,000 down, your loan will only be $400,000. Note that your income must be high enough to qualify for a $400,000 loan even if you have a good down payment.
Conventional financing from a bank or other mortgage-lending institution requires between 5 and 20 percent down. A down payment of less than 20 percent means you'll most likely have to pay private mortgage insurance, or PMI. This protects the lender if you default. Generally, borrowers with minimal down payments are more likely to default because less of their own funds are on the line.
Some loans require a higher down payment than 20 percent due to the risk involved for the lender. Your credit profile, market conditions and property type may affect your loan's risk level. For example, buying an investment property or having a recent foreclosure or bankruptcy on your credit record may require 25 to 30 percent down. In these cases, your buying power is dramatically lower. For example, if you are required to put 25 percent down, a $100,000 down payment gives you a buying power of $400,000 and a mortgage amount of $300,000.
- National Foundation for Credit Counseling: How Much Home Can You Afford?
- Kiplinger: Dealing with the Down Payment
- Business Week: Home Prices Rise in 81% of U.S. Cities as Markets Recover
- Bankrate.com: Fannie Mae is Jacking Up Mortgage Fees
- Yahoo Finance: The More Money You Put Down, The Lower Your Mortgage Payment
- Comstock Images/Comstock/Getty Images