If you are in the market to buy a home this year, you may be confused about how much money you need to come up with for your down payment. Many people you talk to will tell you that you need to save 20% or you won’t be able to secure a mortgage.
The truth is that there aremany programsavailable that let you put down as little as 3%. Those who have served our country could qualify for a Veterans Affairs Home Loan (VA) without needing adown payment.
These programs have cut thesavings timethat many families would need to compile a large down payment from five or more years down to a year or two. This allows them to start building family wealth sooner.
So then, why do so many people believe that they need a 20% down payment to buy a home? There has to be a reason! Today, we want to talk about four reasons why putting 20% down is a good plan, if you can afford it.
1. Your interest rate will be lower.
Putting down a 20% down payment vs. a 3-5% down payment shows your lender/bank that you are more financially stable, thus a good credit risk. The more confident your bank is in your credit score and your ability to pay your loan, the lower the rate they will be willing to give you.
2. You’ll end up paying less for your home.
The bigger your down payment, the lower your loan amount will be for your mortgage. If you are able to pay 20% of the cost of your new home at the start of the transaction, you will only pay interest on the remaining 80%. If you put down a 5% down payment, the extra 15% on your loan will accrue interest and end up costing you more in the long run!
3. 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 that the bank did above. You are seen as a stronger buyer whose financing is more likely to be approved. Therefore, the deal will be more likely to go through!
Simply put, 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%.”
As we mentioned earlier, when you put down less than 20% to buy a home, your lender/bank will see your loan as having more risk. PMI helps them recover their investment in you if you are unable to pay your loan. This insurance is not required if you are 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.
If you are looking to buy your first home, you will have to weigh the benefits of saving a 20% down payment vs. the time and cost of continuing to rent while you save that amount.
If your plan for your future includes buying a home and you’re already saving for your down payment, let’s get together to help you decide what down payment size best fits with your long-term plan!
Author:Victoria Jackson and Mike Shuttleworth Phone: 970-846-8692 Dated: May 8th 2019 Views: 100 About Victoria Jackson and: The Steamboat Luxury Team -Vicki Jackson and Mike Shuttleworth
Vicki Jackson has been a Realtor f...
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COLDWELL BANKER notables:
NUMBER OF U.S. TRANSACTION SIDES: 727,415
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The Steamboat Luxury Team, 10th among all Coldwell Banker Teams in Colorado. from its very formation, has been unique in our approach to real estate, and how we take care of our clients. Our temperament, ethics, experience and success in residential, investment, and commercial real estate separates us from other real estate agents in the valley.. As a result of our approach, all of our associates work together to assist you with every aspect of your real estate transaction. This means that instead of just one agent, you have an entire team of professionals working for you. Local knowledge supported by America’s premier Real Estate Company
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""I used Mike and Vicki to handle short sales for me on multiple income properties. They were professional and informative, walking me through the process and making sure everything was done in a timely fashion. I would use them again and recommend them to anyone looking to buy or sell real estate.""