If you're planning to purchase a home this year, you might be wondering how much money you'll need for a down payment. Many people believe that securing a mortgage requires 20% of the loan amount. Although there are plenty of lower-down payment choices for qualified buyers, it's wise to consider saving a larger down payment for some significant advantages.
There are programs available for qualified buyers to lower their down payments, which is beneficial for those that wanted to start building their family wealth as soon as they can. However, if you could afford to put a bigger down payment, here are the benefits it can give you in the long run.
Lower Interest Rate
Giving a 20% down payment shows your financial stability is good and you a more reliable, hence, a lower risk for your lender. If you have a strong credit score, they might be able to offer you a lower mortgage rate.
Paying Less for your Home
If you can pay 20% of the expense of your new home at the outset of the deal, you'll just have to pay interest on the remaining 80%. If you put down less, the difference will be applied to your loan and accrue interest over time. The interest you could have saved can be allocated to your other expenses like home improvements or retirement funds.
Stand Out in the Competitive Market
Sellers prefer deals with 20 percent or greater down payments in a market where many buyers are vying for the same home. You're seen as a more capable buyer, and your financing is more likely to be accepted. As a result, the contract will be more likely to be completed.
No Need for Private Mortgage Insurance (PMI)
PMI is a form of insurance that covers the lender if you default on your loan. If the lender sees you as a risk, they will need to ask for a PMI to help them recover if things didn't go well with your loan. If you can put down 20% or more on a home, you won't need insurance.
If you're looking to buy your first home, you should weigh the advantages of putting down 20% over a lower down payment.
If you're thinking of buying a house and have already started saving for a down payment, talk to a trusted real estate agent who will help you figure out what would work best for you in the long run.