The Advantages of a 20% Down Payment

By
Real Estate Broker/Owner with Sandra Nickel REALTORS

Perhaps you have been thinking about purchasing a home, but you are not sure how much you need for a down payment. Many people will tell you that you need to have 20% to secure a mortgage. Thanks to various programs available to buyers, the truth is that you can put down as little as 3%. In fact, if you are a military veteran you could qualify for a Veterans Affairs Home Loan and not need a down payment at all! While these programs may mean that you do not have to save as much and you can get into a home sooner, there are some major benefits to making a 20% down payment if you can:

  • YOU MAY QUALIFY FOR A LOWER INTEREST RATE

Putting 20% down vs a 3-5% down payment gives your lender/bank the confidence that you are financially stable and a good credit risk. With this confidence, they will be willing to give you a lower interest rate on your mortgage loan.

  • YOU WILL PAY LESS OVER THE LONG RUN

With a bigger down payment, you will have a lower loan amount for your mortgage. That means you will be paying less interest. For example, if you make a 20% down payment, you will only pay interest on the remaining 80% of the loan. If you put only 5% down, the extra 15% on your loan will accrue interest and you will pay more over the long run.

  • YOU WILL BE MORE APPEALING TO SELLERS

Chances are, you will be competing with other buyers for the same home. Like the mortgage lender/bank, sellers feel more confident in buyers who are making 20% or larger down payment. They will see you as a buyer who’s financing is more likely to be approved, thus ensuring the sale will go through.

  • YOU WILL SAVE MONEY BY NOT HAVING TO PURCHASE PRIVATE MORTGAGE INSURANCE

Private Mortgage Insurance (PMI) is an insurance policy that protects the lender if you are unable to pay your mortgage. It comes to you in the form of a monthly fee included in your mortgage payment. It is required for all conforming, conventional loans that have down payments of less than 20%. If you make a down payment of 20% or more, this insurance is not required. 6 Reasons to Avoid Private Mortgage Insurance

  • YOU WILL HAVE LOWER MONTHLY PAYMENTS

When you make a 20% down payment it will result in smaller mortgage payments. You are starting off with a smaller overall mortgage and saving the expense of PMI, therefore your monthly payments won’t be as high.

  • YOU MAY BE ABLE TO AFFORD A MORE EXPENSIVE HOME

Let’s say you are budgeting for a $1,000 monthly mortgage payment. If you are able to get an interest rate of 3% on a 30-year mortgage, with a 5% down payment you can afford to buy a $171,000 home. But if you made a 20% down payment, you would be able to buy a $213,000 home and still maintain your budget of a $1,000 a month mortgage payment.

While putting 20% down on a home is not a requirement, and you can certainly purchase a house with less down, saving for a 20% down payment may be worth it thanks to advantages listed above!

If you are in the market to buy or sell a home (or both), let Sandra Nickel and her Hat Team of Professionals assist you with all your real estate needs! Call them today at 334-834-1500 and check out https://homesforsaleinmontgomeryalabama.com for more information!

Photo Credits: moneyunder30.com, usatoday.com, gobankingrates.com

Comments (1)

Ed Silva
Mapleridge Realty, CT 203-206-0754 - Waterbury, CT
Central CT Real Estate Broker Serving all equally

Having the resources to be able to make a hefty down payment is a sure way to win a contract in the current market.  It will also be a cheaper purchase for them in the long run when monthly payments are considered

Sep 08, 2021 09:05 AM