Frankly, you can probably find numerous lenders and programs out there that will let you put less than 20% down to purchase a new home. However, that doesn’t necessarily mean it’s the best way to go.
There are many benefits of a 20% down payment. Here are a few that you should consider:
You will pay less for your home over time
Your mortgage – and the interest you end up paying – is based on whatever you can’t afford to pay upfront. When you put down 20% or more, that drastically reduces the interest you’ll pay in the long run. That’s more money in your pocket in the future.
You can snag a better interest rate
Lenders adjust the interest rates buyers get based on a multitude of factors – not the least of which is your perceived financial stability and responsibility. Being able to plunk down 20% of your down payment can make your lender more confident about offering you a good interest rate – and that also translates to less expense for you.
You won’t have to pay private mortgage insurance
Private mortgage insurance (PMI) or “points” are fees for additional insurance that lenders require when buyers have less than 20% to put down on a home. There’s really no escaping that extra expense until you build more equity up. No points means a lower monthly mortgage payment, and that’s always worth celebrating.
You may be seen as a better buyer
When the real estate market is hot, sellers have their pick of buyers. Would you choose someone who only has 3% of the home’s asking price to put down (and, thus, may struggle to get a loan) or someone who can put down 20% today? Sellers don’t want to go through the hassle of a deal that ends up falling through because of the buyer’s financial problems.
It’s daunting to make a purchase this big, so protect your investment from the start. Experienced legal guidance can help make sure that you’re getting everything you expect (and no unpleasant surprises).