One of the biggest fears that homeowners have when purchasing a home is not having a large enough down payment. There is a common misconception that a 20% down payment is required to purchase a home, but there are various loan programs with:

• No down payment
• 3-5% down payment
• 10% down payment
• 20% down payment

Each option comes with different merits, and your lender will help determine the right lending option for your needs.

Who should put 20% or more down?

People who want lower monthly payments

Putting more down means your mortgage principal is reduced, resulting in lower payments.

People who do not want to pay PMI or MI

PMI (Private Mortgage Insurance) is a monthly cost that comes with loans with a high loan to value (LTV) ratio. Mortgage insurance protects the lender in the event you stop making payments on your mortgage. Putting 20% down will help you avoid paying monthly mortgage insurance.  

People who want lower interest rates

A larger down payment will help reduce the overall risk of the mortgage, and loans with less risk benefit from lower interest rates. Lower interest rates will mean a smaller monthly payment and less total interest paid over the life of the loan.   

Who should put less than 20% down

People who need an emergency fund

If you do not have any emergency funds set aside, you may want to consider putting less than 20% down. As a homeowner, you are financially responsible for any expensive repairs that may arise, and borrowing these funds would cost you much more in interest than you would save monthly. 

People looking to buy in growing markets

Growing markets usually happen when an influx of buyers purchase the inventory with cash and cause a shortage. Lower inventory may result in higher prices meaning your initial down payment savings of twenty percent may be more difficult to attain.

People who have lower than ideal credit/income

If you have credit/income challenges, you will more than likely consider an FHA loan. These loans suit buyers who desire to become a homeowner but may not perfectly fit into every qualification of a conventional loan. In these cases, it makes the most sense to have your loan officer go over your financial situation and develop your mortgage strategy. 

Do not let the idea of a down payment scare you out of buying a home. Click here and schedule an appointment with one of our mortgage loan experts. They can cover the numerous options available to you and your family.