When buying a house, should you consider making a large down payment?
Buying a house? Your financial situation and your goals determine when a larger down payment makes sense and when it doesn’t. (iStock) When looking to buy a house, whether you can afford it is always a top consideration. This includes how much of a down payment you want to make on your new home. Coming up with the cash for a down payment can be a barrier for prospective buyers. In 2019, the average down payment on a house or condo was 12%, according to the National Association of Realtors. For first-time buyers, the number drops to 6%. However, if you have enough to make the 20% down payment, should you make the standard payment, or is it beneficial for you to put down more? If you’re looking to purchase a home in today’s market, you can explore your mortgage options by visiting Credible to compare rates and lenders. Using an online mortgage calculator can also help you estimate monthly mortgage payments and narrow down home prices in your range. BUYING A HOME AMID THE PANDEMIC? HERE'S THE CREDIT SCORE YOU NEED How much is a standard down payment on a house? The standard 20% down payment that most people think of when buying a house is a point of reference. Some buyers save until they have enough to make the standard down payment but having less than 20% won’t prevent you from getting preapproved for a mortgage loan. However, the minimum down payment requirement varies by lender and mortgage program so it’s important to be aware of the terms before picking a mortgage lender. Borrowers making the standard down payment often have an easier time securing a mortgage. The 20% down payment lowers your loan-to-value (LTV) ratio and the lender would be assuming less risk by financing 80% of the home. For potential borrowers who cannot afford to make the 20% down payment, lenders will likely view the loan as a riskier investment. Because of this, borrowers are required to take out private mortgage insurance (PMI) when making a down payment that's less than 20% on a conventional mortgage loan. PMI protects the lender if the borrower defaults on the loan and the home goes into foreclosure. There are some mortgage programs that allow as little as 3% and some don’t require any money down. Here are some options: You can explore your mortgage options in minutes by visiting Credible to compare rates and lenders. Check out Credible and get prequalified today. WHAT IS PRIVATE MORTGAGE INSURANCE AND HOW DOES IT WORK? Pros and cons of putting a large down payment on a house Making a larger down payment on a house has its pros and cons. By putting down a larger down payment, borrowers can benefit from: Potential disadvantages of making a larger down payment include: To find the best mortgage rate, start by using Credible. Credible can show you current mortgage rates from multiple lenders and help you make an informed decision regarding your home loan. 7 WAYS TO SAVE MONEY FOR A HOUSE How much should you put down when buying a house? The amount you pay as your down payment when buying a house depends on your goals and financial situation. Saving for a larger down payment may be worth considering if you prefer to have a lower monthly mortgage bill. Paying too much could mean sacrificing your other savings. To get a better idea of how the down payment amount determines potential monthly payments, you should use an online mortgage calculator. And if you have any mortgage concerns, you can also visit Credible to get in touch with experienced loan officers and get your mortgage questions answered. PAYING OFF YOUR MORTGAGE EARLY: PROS AND CONS Have a finance-related question, but don't know who to ask? Email The Credible Money Expert at [email protected] and your question might be answered by Credible in our Money Expert column. Source: Read Full Article