Top Reasons Why Putting 20% Down Is A Good Idea When Buying A Home

Out of all of the many decisions that you need to make to buy a home, how much to put towards a down payment is one of the biggest ones. The majority of first-time homebuyers think that everyone has to put at least 20% down. However, this is not always the case.

Some lenders are willing to allow a lower down payment if you meet other qualifications such as having an excellent credit score or meeting the requirements for specific home buyer programs. For example, veterans may be able to opt-out of a down payment if they qualify for a VA loan. While it might be tempting to take advantage of these offers, there is more than one benefit to purchasing your home with 20% down that you need to know about.

Get a Lower Interest Rate

The loan application process often involves figuring out how to get the lowest interest rate. By now, you’ve done your part to get your credit history in order. Now, you can consider how putting 20% down can get you a better interest rate by reassuring lenders that you are capable of paying back the loan. Having this much cash on hand to make a down payment demonstrates that you have the ability to save money and work towards a goal. Lenders find these desirable traits to be worthy of a lower interest rate since you’ll be less of a risk for defaulting on your loan terms.

Pay Less Over Time

The reason why it’s smart to put 20% down becomes evident once you start crunching the numbers. This traditional down payment amount means that you will still only owe 80% of your home’s value. If you compare this to the 96.5% that you’ll owe if you put down an amount of 3.5%, then you can see how this can quickly add up to you paying more interest over time. You’ll also enjoy having more equity in your home right away, which feels good as a new homeowner.

Make Your Offer Stand Out to Sellers

In a competitive market, sellers often have the upper hand. They may see multiple offers come through, and they’ll be looking for ones with larger down payments. Sellers tend to operate much like lenders. Seeing you can make a large down payment tells them that you are more likely to get approved for a loan and follow through on the deal.

Avoid Paying for Private Mortgage Insurance

Lenders frequently require you to pay for PMI if you put down less than 20%. This form of insurance is designed to reduce the lender’s risk if something happens and you fail to repay the loan. PMI costs are added to your monthly mortgage payment, and they can add up over time. Being able to opt-out helps you keep your mortgage payment more affordable.

If you have the ability to put 20% down on a home, then it just makes sense in most situations to do it. While the amount might seem high at first, you’ll receive benefits immediately such as having a lower mortgage payment and more equity. Then, the benefits just keep coming with time as you save on not having to pay as much interest over the life of your home loan.