Thursday, March 4, 2021 / by Breanna Thornton
Down payments can be a scary concept to tackle. They look like a lot of money upfront, and putting this money down on a house is a big commitment. In this article, we are going to talk about different aspects of the down payment to help you be more familiar with what the right amount might be for you.
Image from Findmywayhome.com
Is there an ideal down payment?
Most believe that a 20% down payment is the right amount across the board. This is because 20% of a house is a large sum, and it shows lenders that you are more likely to make your payments on your home. However, 20% might not be the right choice for everyone. Just because 20% is the average doesn’t mean it isn’t smart to pay more or less than this. Every home, family and situation is unique, so talking with a lender will be the best way to find what your ideal percentage is.
What are the benefits of paying more?
If you have the money saved up and set aside to pay more than 20%, it’s never a bad idea. The first benefit to paying more is that the lender will have more trust in you. This will raise your chances of getting the loan you need significantly. In addition, a bigger down payment means that more of your house is paid for upfront! Your mortgage lifetime could become shorter. Since you pay interest on whatever amount of the home is remaining, monthly payments will be less. You can’t go wrong by paying a larger percentage of the down payment.
Can I pay a small down payment?
There is almost always an option to pay a smaller amount upfront. For veterans, there are some programs that require 0% down before purchasing a home. There are also many programs that allow people to put down as little as 3.5%. This is a good option if you are looking to move as soon as possible and don’t have a lot of money saved for a house. However, there are some things to be aware of. It will be harder to get a loan from lenders because they aren’t sure if you will be financially reliable, and you might have to pay Private Mortgage Insurance. This is a monthly fee for the first couple months of your mortgage that protects the lender in case you aren’t able to pay your mortgage. At the end of the day, if you plan well, a small percentage will be a good option because you can get into a home sooner than you would think.
Image from The Mortgage Reports
Down payments make sense when you think about it. They are a great way to show responsibility, get a loan, and stand out in the competitive market. Make sure to speak with a lender to figure out the best course of action. If you have questions about your home, contact us and we will help you with any questions!
Header image from Nashville MLS