When you think of purchasing a house, the number one challenge most potential homebuyers have to think about is their down payment. Homebuyers are typically required to contribute a down payment equal to 3-20% of the sales price of the home. Low down payment options are real and they represent a significant portion of today’s purchases. However, even if you can get a low down payment loan, is it a good idea? Not necessarily. Let’s see the difference between putting a 20% down payment to having a low down payment.
- The larger your down payment, the less you have to borrow, and therefore, the lower your monthly payments. You pay less over the life of the loan.
- If you have a very small down payment, you will be eligible for fewer types of mortgages and may be charged a higher interest rate.
- For any down payments less than 20%, you will be asked to pay Private Mortgage Insurance. This insurance safeguards the lender should the borrower be unable to keep up the monthly mortgage payments, resulting in less of a financial loss to themselves.
- The bigger the down payment builds an instant equity the property when you purchase it, which safeguards you if the market turns down temporarily.
So having presented with these, the down payment also acts as a reality check: if you haven’t been able to save for even a minimal 3% amount for down payment, you should ask whether you are financially ready to buy a house. Education is the key. Knowing more how down payments are determined and knowing all your options can save you from a lot of stress and debts in the future. Be sure you are ready and financially secure before you dive into purchasing a home.
Do you want to learn more about preparing your finances to purchase a home? Or do you want to know how much you would qualify for TODAY? We partner with a wonderful lender who can provide information to you in a no-pressure environment! Just send us an email or give us a call so we can introduce you!
Sandy Erickson Real Estate Team of Keller Williams Realty