If you’re planning to buy a new home, you may be wondering if you should save 20% for a down payment. Today, Loan programs require down payments as low as 3.5% for FHA loans and conventional offers as low as 5%. While you have a lot of options, there are 4 strong benefits to making a 20% down payment on your home.
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Lower Interest Rates
A borrower who can put 20% down on a home is considered a lower-risk buyer. In addition, the lender only needs to recover 80% of the home’s value in the event of a default.
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Therefore, the interest rates will be more favorable than that of a higher loan-to-value program.
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Less Interest Paid
A lower loan amount means there is a smaller amount of money subject to interest. Over the life of the loan, putting 20% down on the home will save you thousands of dollars in interest.
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Your Offer is Stronger
In a highly competitive market, sellers are more likely to accept an offer with a higher down payment. You will be considered more financially stable and thus better able to close on the loan and sale.
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No PMI
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PMI (private mortgage insurance) is an additional fee added to all home loan payments where the value of the home is under 80%. This provides insurance to the lender in the event of a default.
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Ultimately, work with your lender to understand your options and identify the best loan program for your needs, but putting 20% down on a home loan can provide some nice perks.
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Have questions about your down payment options? We’d love to assist you! Contact us!
