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The Perks of Putting 20% Down on a Home

By
Real Estate Agent with MVP Realty

The Perks of Putting 20% Down on a Home

The Perks of Putting 20% Down on a Home | MyKCM

If you’re thinking of buying a home, you’re probably wondering what you need to save for your down payment. Is it 20% of the purchase price, or could you put down less? While there are lower down payment programs available that allow qualified buyers to put down as little as 3.5%, it’s important to understand the many perks that come with a 20% down payment.

Here are four reasons why putting 20% down may be a great option if it works within your budget.

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 and not a large credit risk. The more confident your lender is in your credit score and your ability to pay your loan, 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, you’ll only pay interest on the remaining 80%. If you put down 5%, the additional 15% will be added to your loan and will 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

In a market where many buyers are competing for the same home, sellers often 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:

“For homeowners who put less than 20% down, Private Mortgage Insurance or PMI is an added insurance policy for homeowners that protects the lender if you are unable to pay your mortgage.

It is not the same thing as homeowner's insurance. It's a monthly fee, rolled into your mortgage payment, that’s required if you make a down payment less than 20%. . . . Once you've built equity of 20% in your home, you can cancel your PMI and remove that expense from your monthly payment.”

As mentioned earlier, if you put down less than 20% when buying a home, 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.

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 20% down on their next home. With the equity homeowners have today, it creates a great opportunity to put those savings toward a larger down payment on a new home.

Bottom Line

If you’re looking to buy a home, consider the benefits of 20% down versus a smaller down payment option. Let’s connect so you have expert advice to help make your homeownership goals a reality.

Posted by

Joseph D.  Federico, Donahue Real Estate Co. Dedham, MA - Serving my clients in Dedham, Westwood, Norwood, Canton, Milton, Sharon, Walpole, Jamaica Plain, Roslindale, West Roxbury, and West Bridgewater.

Joseph D. Federico

Donahue Real Estate Co. 

15 Bryant St., Dedham MA

"Neighbors Helping Neighbors"

www.Joefed.com

joe@donahuere.com

 

 

 

 

 

Comments(3)

Wayne Martin
Wayne M Martin - Oswego, IL
Real Estate Broker - Retired

Good morning Joseph. Call me old fashion but I have always put down 20% or more. In today's market with interest rates so low, might think differently. Enjoy your day.

Dec 23, 2021 04:22 AM
Bill Salvatore - East Valley
Arizona Elite Properties - Chandler, AZ
Realtor - 602-999-0952 / em: golfArizona@cox.net

Always good, but first timers dont always have the option. Just best to start somehow or continue paying your landlord's mortgage. #Homeownership

  Thank you again for the post, enjoy your day and "Happy Festvius ya bastards"

bill

Dec 23, 2021 06:42 AM
George Souto
George Souto NMLS #65149 - Middletown, CT
Your Connecticut Mortgage Expert

Joseph D. Federico for those who can come up with a 20% down payment it would lower their Debt-To-Income Ratios, which would make it easier to qualify for financing.

Dec 23, 2021 12:58 PM