What Are the Benefits of a 20% Down Payment?
If you’re thinking of buying a home this year, and you may be wondering how much money you need. Additionally, we will discuss options to think about.
In fact, there are many programs available that allow you to put down as little as 3.5%. Putting less down has 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). The truth is they may not need a down payment at all. These programs have really cut down how long you need to save for your downpayment. Furthermore, 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.
1. Your interest rate may be lower.
A 20% down payment vs. a 3-5% down payment shows your lender you’re more financially stable. Lenders look for credit risks, and so more down less risk. The more confident your lender is in your credit score and your ability to pay your loan; however, the lower the mortgage interest rate they’ll likely be willing to give you.
2. 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, and you’ll only pay interest on the remaining 80%. If you put down 5%, the additional 15% will be added to your loan and accrue interest over time. This will end up costing you more over the lifetime of your home loan.
3. Your offer will stand out in a competitive market.
Many buyers are competing for the same home in a market, and 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.
4. 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, so it’s rolled into your mortgage payment. It is required for all conforming, and conventional loans that have down payments less than 20%. Once you’ve built equity of 20% in your home, you can cancel your PMI. The removal will lower your monthly mortgage payment.”
As mentioned earlier, when you put down less than 20%, 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.
Moreover, home sellers looking to move up to a larger or more expensive home can 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 greater opportunity to put those savings towards your down payment.
Finally, if you’re thinking of buying a home, let’s connect to discuss what fits best with your long-term plans. I’ve worked with a lot of lenders, and so recommend doing some homework. 1. What is the lender’s reputation? Sellers are looking for a guarantee you’ve been fully underwritten with the lender. 2. Also, look for competitive interest rates. Lenders like to roll in fees in their interest rates. 3. In addition, look for Lenders that don’t charge you fees. As a matter of fact, Keller Williams now has their own mortgage company that can save you thousands with Zero Plus.
As we move forward….
It’s been tough as we navigated through all the changes. Putting your dream of a new home on HOLD shouldn’t be one of them. Now more than ever, knowledge will be your power. Know the Market You’re In and your Negotiation Power. Check out Categories for additional updates regarding the Market | Buying | Selling & My Blueprint to Your 🔑 to Success
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