If you’re thinking of buying a home this year, you may be wondering how much money you need to
come up with for your down payment. Many people may think it’s 20% of
the loan to secure a mortgage. While there are plenty of lower down
payment options available for qualified buyers who don’t want to put 20%
down, it’s important to understand how a larger down payment can have
great benefits too.
The truth is, there are many programs available that
allow you to put down as little as 3.5%, which can be a huge benefit to
those who want to purchase a home sooner rather than later. Those who
have served our country may also qualify for a Veterans Affairs Home
Loan (VA) and may not need a down payment.
These programs have really cut down the savings time for many potential
buyers, enabling them to start building family wealth sooner.
Here are four reasons why putting 20% down is a good plan if you can afford it.
- Your interest rate may be lower.
A
20% down payment vs. a 3-5% down payment shows your lender you’re more
financially stable and not a large credit risk. The more confident your
lender is in your credit score and your ability to pay your loan, the
lower the mortgage interest rate they’ll likely be willing to give you.
- You’ll end up paying less for your home.
The
larger your down payment, the smaller your loan amount will be for your
mortgage. If you’re able to pay 20% of the cost of your new home at the
start of the transaction, you’ll only pay interest on the remaining
80%. If you put down 5%, the additional 15% will be added to your loan
and will accrue interest over time. This will end up costing you more
over the lifetime of your home loan.
- Your offer will stand out in a competitive market.
In
a market where many buyers are competing for the same home, sellers
like to see offers come in with 20% or larger down payments. The seller
gains the same confidence as the lender in this scenario. You are seen
as a stronger buyer with financing that’s more likely to be approved.
Therefore, the deal will be more likely to go through.
- You won’t have to pay Private Mortgage Insurance (PMI)
What is PMI? According to Freddie Mac:
“PMI
is an insurance policy that protects the lender if you are unable to
pay your mortgage. It's a monthly fee, rolled into your mortgage
payment, that is required for all conforming, conventional loans that
have down payments less than 20%. Once you've built equity of 20% in
your home, you can cancel your PMI and remove that expense from your
mortgage payment.”
As
mentioned earlier, when you put down less than 20% when buying a home,
your lender will see your loan as having more risk. PMI helps them
recover their investment in you if you’re unable to pay your loan. This
insurance isn’t required if you’re able to put down 20% or more.
Many
times, home sellers looking to move up to a larger or more expensive
home are able to take the equity they earn from the sale of their house
to put down 20% on their next home. With the equity homeowners have
today, it creates a great opportunity to put those savings toward a 20%
or greater down payment on a new home.
If you’re looking to buy your first home, you’ll want to consider the benefits of 20% down versus a smaller down payment option.
Bottom Line
- If you’re thinking of buying a home and are already saving for your down
payment, let’s connect to discuss what fits best with your long-term
plans. I have lenders to recommend who have loan programs big banks
limit the customer from. Also, with my thirty one years of Realtor
experience assured by full time home buyer service and loyalty to buyers
only from this firm, I will make the buying process streamlined and
show all listings in the market with an unbiased approach to the sellers
interest. Guaranteed. Text to set time to talk 949-573-2953 or email
your questions to suzanne@coastalbuyers.com