Many buyers are confused about how much money they need to come up with for their down payment. People you talk to will tell you that you need to save 20% or you won’t be able to secure a mortgage.
The truth is that there are many programs available that let you put down as little as 3%. Those who have served our country could qualify for a VA loan without needing a down payment.
Why do so many people believe that they need a 20% down payment to buy a home? There are four reasons why putting 20% down is a good idea, if you can afford it.
1. Your interest rate could be lower. Banks and lenders see you as less of a risk.
2. You’ll end up paying less for your home. Most of the interest on the loan is paid during the first 10 years. By having a large down payment you can save a lot of money on interest.
3. Your offer will stand out in a competitive market! A good realtor can get your offer accepted over other offers.
4. You won’t have to pay Private Mortgage Insurance (PMI) Simply put, PMI is “an insurance policy that protects the lender if you are unable to pay your mortgage. It’s a monthly fee, rolled into your mortgage payment, that is required for all conforming, conventional loans that have down payments less than 20%.”
If you are looking to buy your first home, you will have to weigh the benefits of saving a 20% down payment vs. the time and cost of continuing to rent while you save that amount.