How Much Will the Down Payment Be?

You are a first time homebuyer, and you are trying to calculate your down payment. How much do you need to afford the home of your dreams? Truth be told, the number can vary incredibly. If you have stellar credit, a solid job, multiple house income streams, and a target area in mind that's not ultra pricey, you may be able to put as little as zero percent down on your home and still pay modest interest rates.

Conversely, if you are trying to buy a home in a crowded marketplace, such as Beverly Hills or West Hollywood, or if your credit score is less than ideal, you may have to put 20 percent down or more. You can use calculators online based on today's rates and a smattering of different loan terms to assess your basic monthly and annual charges.

However, remember that your down payment involves more than just the principal on your loan. When you buy a house, you also have to consider property taxes, realtor fees, homeowners' association charges, lenders fees, moving cost, and probably dozens of other associated costs. If you leave these costs out of your budget, and you throw the bulk of your savings into your down payment, you may be left scrounging for funds to make future payments.

Thus, experts suggest that when assessing your down payment responsibilities, you should think long-term. The money you put into your house initially will be used to pull equity in your property -- cash you can tap into later for a line of credit or for cheap refinancing options, potentially -- but that's also money that you can't use to pay bills, to earn interest, and so forth. There is a trade off here -- the extra equity that you may gain from a hefty down payment can leave you slightly more strapped for cash now.

The key to gauging the amount of down payment you can handle is to assess your family's finances in a practical, conservative manner. Budgeting software, such as Quicken, can help you categorize your expenses and debts.

Moreover, lenders will automatically cap you, so you can't buy too much more house than you can afford. If your debt to income ratio exceeds a certain value, lenders simply won't approve you for your loan. Don't forget to factor in the tax consequences and deductions of homeownership when doing your down payment calculations.