If you’re currently trying to buy a home, you may be wondering how much of a down payment you need. While there is no simple answer to tell you what you should do when purchasing a home, as each situation is unique, there are many reasons why a 20% down payment is generally the “best” option when home buying.
While there are many benefits to using a larger down payment there are 3 that seem to stick out the among the rest. It is important to remember that there are other options out there if a 20% down payment is not affordable for you or your situation.
#1 PMI Is Not Required
PMI, also known as private mortgage insurance, is required on all loans that have anything less than 20% of loan to value. PMI generally costs anywhere between 0.5%-1% of the loan amount per year. For example:
Loan amount: $400,000
0.5% of Loan: $2,000/12 = $166.67
1% of Loan: $4,000/12 = $333.33
This means that you could be paying anywhere between $166-333 per month in addition to your regular mortgage amount if you choose to do a down payment of anything less than 20% of the purchase price.
#2 Less to Finance
Everyone loves to save money, and when putting a minimum of 20% down you are financing far less than if you were to opt for less of a down payment amount. By dropping the amount you will finance you are not only in less debt, but you are also saving monthly on your mortgage statement.
#3 Better Financing Options/More Inventory
The larger your down payment, generally the better financing options you can secure, however, this may depend on the lender that you choose to work with. Another huge perk once you’ve secured your financing options is that by using a larger down payment you may end up opening up more options within the housing market. Financing less by using a larger down payment could allow you to have a higher budget in some cases, and thus, allow you to view more purchase options.
Related: Can I Qualify For a Home Loan?
While there are many benefits to putting 20% down on a house, you have to decide if that is a good option for you financially. While you will eliminate PMI by doing so, you don’t want to put yourself in too tight of a spot when purchasing a home. So, if a smaller down payment is better for your situation, don’t feel pressured to do more than you are comfortable with. Discuss your options in depth with your lender and weigh all of the options available to you.
Related: Can You Have Too Much Curb Appeal?
As with all Real Estate purchases, it is important to work closely with a qualified real estate agent, and when considering a Garden Home, be sure to look at the pros and cons associated with the home style. Ask yourself questions such as if you like the idea of having a small maintenance free yard or would you prefer to have a large yard to garden and landscape?
If you’re currently searching for a new home, whether a garden home or not, are ready to sell your home, or if you have any questions regarding Southwest Washington Real Estate, please feel free to contact our office at any time.
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