If you or someone that you know are considering purchasing a home, it can be confusing figuring out exactly how much money is considered to be enough to put towards a home down payment. Oftentimes, you will be told that if you don’t put down at least 20% you won’t be able to obtain a decent mortgage.
Thankfully, many different programs are available in which you will be able to put down as low as 3% towards a home down payment. For example, if you have served in any branch of the United States Armed Forces, there is the chance that you could end up qualifying for what’s known as the Veterans Affairs Home Loan. This type of loan will not require you to put down anything whatsoever towards a down payment.
On the other hand, putting down approximately 20% towards a down payment on a home is actually considered by many to be good practice, and there are a few reasons to why.
For starters, submitting a 20% down payment will prove to your bank or lender that you have financial stability, and will show them that you are a good candidate with low-risk of defaulting on your mortgage, which makes you a better investment for them in terms of credit. In essence, this means that you will stand a much better chance of obtaining a much lower rate, especially if you have a good credit score on top of your down payment that shows have a good financial history in paying back debt.
Additionally, by making a larger down payment, you will be ensuring that the amount of your loan for your mortgage will be lower instead of higher. For instance, paying 20% of the total cost of the home that you wish to purchase at the beginning of the process means that you will only have to pay interest on the 80% of the cost that remains. On the other hand, making a down payment of only 5% will result in you only gaining more interest and having to pay a lot more as time goes on.
For those of you who are selling your homes in addition to looking to buying a new home also benefit from a higher percentage down payment. Typically, down payments of 20% or more are ones that sellers prefer the most, as this gives them much of the same type of confidence that lenders and banks get in a buyer, as we mentioned above. This will communicate to them that your financing will more than likely end up getting approved, meaning that they will be able to sell their home faster than they may have planned.
All in all, how much you want to save for a down payment is an important decision, especially if this is a purchase that you are considering in the near future. Meeting with an experienced professional in order to determine how different down payment options will fit within your budget so you can buy that dream house you’ve had your eye on!
Thank you for reading our real estate and homeowner’s blog. We are Weichert Realtors – Barton Harris & Co. and we’re happy to have helped you learn more about why it may be beneficial to put a 20% down payment on your future home.