Saving for a down payment is a massive barrier to homeownership. For decades, 20% of the home’s purchase price has been the magic number. Is this still true?
These days, few lenders require a 20% down payment, which is good news for cash-strapped buyers! However, coming to closing with a large down payment has certain advantages that are tough to argue.
Are mortgage programs that feature a low down payment a financially savvy move? Should you save for that 20% down payment, even if it means delaying your homeownership dreams? There’s no easy answer to these questions.
Want to know more? Today we’re going to review the good and bad about putting 20% down on your home purchase to help you decide which path to take on your homeownership journey.
Putting 20% Down on Your Home Purchase: The Pros
If you can put 20% down on your home purchase, we recommend it. If you do, you’ll probably save a hefty amount over the life of your loan. Here are three of the biggest benefits:
- No PMI: Lenders require borrowers to pay extra for private mortgage insurance (PMI) until they reach 20% equity in their homes. A 20% down payment avoids this additional expense.
- Lower interest rates: If you come to closing with a high down payment, you’ll have access to lower interest rates which will save you a ton throughout your loan.
- Lower monthly payments: The more cash you bring to closing, the lower your monthly payment will be. A 20% down payment now will make it easier to budget for maintenance and repairs later.
The Downside of a 20% Down Payment
Believe it or not, there are some cons to making a 20% down payment. Here are a few things to think about:
- A high down payment is risky: If there’s a good chance that you might need the money for another venture down the line, you might want to consider a lower down payment.
- You’ll have less cash for initial improvements: If the home you want needs a little TLC, you might want to take advantage of a lower down payment so that you have more initial funds on hand to spruce it up.
- It takes a long time to save that much cash: If you’re renting while saving for a down payment, you might be costing yourself money in the long run. Take time to crunch the numbers to see if purchasing a home using a low down payment will make you come out ahead financially.
Contact MortgageDepot Today!
Are you weighing the pros and cons of mortgage programs that offer low down payments? Contact us at MortgageDepot today to see home loan options to suit your unique needs!
Connect with one of our loan consultants for more information.
