Is Making a 20% Down Payment on a Home Beneficial?

Many people considering purchasing a home right now are wondering how much money they will need for the down payment on a home. Traditionally that number has been 20% of the purchase price for a standard mortgage loan. In recent years there have been more and more loan programs offering qualifications with a much lower down payment. Because of this some buyers have begun to ask the question if making a 20% down payment on a home is still worth the large sum of money.

There are several different loan program options for buyers in the mortgage market today. Some allow eligible applicants to put down as little as 3.5% of the purchase price to get into a new home. This is a great benefit to buyers that may not be able to afford the much larger traditional 20%. If you can afford to pay the 20% it can be a beneficial choice to you and here is why:

Possibility of a Lower Interest Rate

To a lender, the larger the down payment a buyer invests of their own money into the home, the more serious they are about purchasing the home and staying current with their loan payments. In the lending world, lesser down payments are seen as more of a lending risk. The lower of a risk a borrower is (determined by a set of qualifying factors set by the industry and the particular lender) the lower the interest rate they will offer you.

Borrowing Less Money on the Home

The larger sum of money you pay on your home upfront, the less amount of money you will need to borrow from the bank. If you pay 20% of the home’s cost right away you will only be borrowing and paying interest on 80% of the purchase price instead of 95-97% with a low down payment program. This can add up to huge cost savings in interest over the life of the loan.

Your Offer Could Stand Out in This Competitive Market

In a market where it is now common for home sellers to see more than one offer made on their home, a larger down payment communicates loan approval is more solid for the buyer.

No Private Mortgage insurance Necessary

Private Mortgage Insurance or PMI protects the lender of a mortgage if the borrower is unable to or stops making mortgage payments. This insurance is paid for in the form of an extra fee added into the monthly mortgage payment. This is a mandatory requirement set by lenders on loans where the down payment is less than 20%. When the borrower has built equity in the home of at least 20% the insurance can be dropped.

Though lesser down payment options are helpful and intriguing, it is best for every buyer to consult the advice of a real estate professional to determine what option is personally best for their personal financial situation and needs.

For more information on homes for sale in St. George and surrounding areas please contact me any time.