Saving up for a down payment on a new house often requires a few years of solid effort or more. For those who want to buy a home as soon as possible, there are several loan programs available that allow you to buy a home with as little as 3% down. Some programs even require no down payment for qualified applicants. While these options can help you get into a new home sooner, should you take advantage of them? Learn about the benefits of making a larger down payment when buying your next home.
A More Affordable Monthly Payment – Affordability is a crucial factor for homebuyers to pay attention to. By making a larger down payment, you could set up a more affordable monthly payment. Your new mortgage payment could be in place for up to 30 years, so this is a financial benefit that you will continue to enjoy month after month. It may allow you to enjoy a better lifestyle, save more money, and achieve other goals.
A More Expensive Home – While some people who make a larger down payment secure a lower loan amount and a more manageable mortgage payment, others choose to purchase a more expensive home. This may be a larger home than they otherwise could afford. It may be a nicer home with finer features or a home in a more ideal location. A look at your housing market today will help you decide how this applies to you.
No Mortgage Insurance Premium – The down payment requirement for an FHA loan is only 3%, so this is an attractive financing option for many qualified buyers. However, if you put less than 20% down under this program, a mortgage insurance premium will apply to each payment. This premium may add several hundred dollars per month to the mortgage payment in many cases, so it makes homeownership more expensive. You can avoid mortgage insurance by making a larger down payment.
More Equity – Your home equity will slowly build with each mortgage payment you make. When you have a larger down payment, you could have a sizable amount of equity from day one. From time to time, property values can decline. Homeowners who have less equity are more likely to be upside-down on their mortgage when this happens. As home equity increases, your ability to qualify for a home equity loan or home equity line of credit increases. While these financing options are not pursued by some homeowners, others tap into their equity to start a business, fund their kids’ college educations, and achieve other goals.
Less Interest Paid – The total interest paid over the life of your mortgage hinges on the length of the term, the interest rate, and the principal balance. With a lower initial loan amount, you can enjoy savings on interest charges from day one. Throughout the life of your mortgage, this can yield tens of thousands of dollars or more in savings.
There are benefits associated with buying a home sooner as well, and it is important to understand all of your options before making your decision. For example, with a lower down payment you can start building equity by purchasing your home sooner. Also, if interest rates are increasing, you could lock in a lower rate by buying the home sooner. To understand your specific financing options, speak with your mortgage professional today.
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