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 will say that you need to save 20% or you won’t be able to secure a mortgage.
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! Here are four reasons why putting 20% down is a good plan, if you can afford it.
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.
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!
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
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.
Contact Amy Osborne at HomeBridge for more information: 864-325-9088
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Ever wonder why REALTORS are always asking if the buyer is Pre-Approved for the mortgage?
This graph from the REALTORS Confidence Index published by the National Association of REALTORS shows the reasons why there were delayed closings: #1 is problems with Financing!
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Just another great reason to be in Greenville South Carolina.
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