Six Arguments to Make a 20% deposit
For those who don't have the funds to pay 20%, a mortgage program that only requires 3 to 5% down can allow purchasing a house.
What if you had enough savings to pay 20 percent down? Do you really have to spend that much on buying a home?
Do you really want to use your life savings to buy a home? A 20% down payment is possible if you have enough savings to cover an amount that is substantial for a down payment, and still have some savings in cash after purchasing the house.
1. Prevent home value declines
In the ideal scenario, the homes would appreciate or at a minimum retain their value. However, there are times when property values fall, which causes many homeowners to fall behind in equity. Even a tiny down payment or no down payment may not be enough to protect against the decline.
If your property's value declines, you could be left with negative equity or even an upside-down loan. This is when you are obligated to pay more than what the property is worth. On the other hand, the more you invest in buying a home it is more likely that you will be able to keep equity even if the value of your home declines. Here are some options for home equity to think about.
2. Avoid PMI
One of the greatest benefits of a 20% downpayment is that you do not have to pay for private mortgage insurance (PMI).
PMI is required on most home loans without 20% down. It is possible that lenders are more at risk when the borrowers have less cash. The lenders are protected through PMI in the event that borrowers default.
The problem with private mortgage insurance is that it's a part of the monthly mortgage payment. This could increase your monthly cost for housing by more than $100 and PMI typically will not be waived until your home has at least 20 percent equity.
For an FHA home loan, mortgage insurance is forever if you're putting down less than 10 percent. To avoid the cost, you'll need to refinance your FHA loan.
3. Reduce your mortgage payments
With 20% down, you'll enjoy the benefit of a lower monthly mortgage payment. There is no need to pay PMI as well, and you'll also be able to finance a lower amount. This can increase your disposable income which could be used to recoup the savings account.
4. Qualify to receive a higher interest rate
Different factors determine your mortgage interest rate. You will typically pay a higher interest rate in the event that your credit score is good. This includes having a high debt ratio, making a small down payment or having no down payment, or having a poor credit background.
A greater down payment and credit score can help you obtain a lower rate. A lower rate can reduce how much you pay in interest over the course of your mortgage. A lower interest rate could even reduce the monthly mortgage payment.
5. Compensates for a higher credit risk
A 20% down payment on a house can help you get approved when your income is high enough to qualify for a mortgage.
The greater your stake in a property is, the more money you'll invest. Homebuyers who put more money into a property purchase are less likely to be able to get it than those who don't and this increases the lender's confidence.
6. Get your mortgage paid off sooner
If you're looking to repay your home loan faster making a down payment of 20% is a good option. A 15-year mortgage can be a great option to accelerate your payoff. However, the cost for a 15-year mortgage - with a low down payment - may be more than what you can afford to pay each month.
If you put down 20% but this is not required, it could help make the monthly payment for a 15-year mortgage less daunting. This will allow you to get rid of the house sooner and also build equity.
Address: 1003 E Wesley Dr # C, O'Fallon, IL 62269
Phone: (618) 632-0001
Email: [email protected]
Address: 1003 East Wesley Drive Suite C, O'Fallon, IL 62269
Email: [email protected]