If you are thinking about purchasing a home this year, you might want to consider how much you will need for the down payment on your new home. Many people assume that 20% down payment is necessary to secure a mortgage, but there are many other options available to you. Although lower payments will be an option for qualified buyers who don’t want to commit to 20% down, it is important to understand how larger payments have great benefits. 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 soon. Here are some great reasons why putting 20% down is a great idea for you:
- A lower interest rate: A larger down payment shows your lender that you are a more secure buyer that is financially stable, leading to you being less of a credit risk. When the lender is confident in your stability and credit score, they will incentivize you with a lower mortgage interest rate.
- Paying less for your home in the long run: The larger a down payment you have, the smaller amount you will have to receive in loans. When dealing with loans, you must remember that interest rates will accrue over time and it will be added to your loan over the lifetime. If you put down a larger down payment from the beginning, you will have a smaller loan and less interest accrued in the long run.
- Make your offer standout: In an extremely competitive market, there are many buyers forced into bidding wars to acquire the home of their dreams. Sellers would prefer to see a larger down payment in the current market because then the buyer is seen to be a stronger candidate that will more likely be approved.
- Avoidance of PMI: PMI is an insurance policy that protects the lender if you are not able to pay your mortgage. It is a monthly fee added onto your mortgage payment that is required for all down payments that are less than 20%. PMI helps lenders recover their payment if the buyer is unable to pay back the loan. This insurance isn’t required if you have the opportunity to put more than 20% down.
If you are thinking about purchasing a home, start saving for your down payment today! Connect with Seven Gables to learn more about how to successfully buy your dream home!