Why a 20 Percent Down Payment When Buying a Home?

3d rendering of a 20 percent discount in red letters on a white

When making a home purchase, having a down payment is important. It shows the lending institution you are serious about investing in the property. Here are some reasons why you should like to make that 20% down payment:

It Gets You the Mortgage
By having the 20%, you improve your chances of obtaining a mortgage. (Some banks will not loan money to you unless you have enough funds for that 20%.) The magic number of “20%” reduces their risk in giving you a loan.

Qualified Mortgage Rules
The new qualified mortgage rules from the Consumer Financial Protection Bureau state that you must meet a 43% debt-to-income ratio. (Your total debt has to be less than $43 for every $100 in income you earn each month.) By putting down 20%, you reduce your monthly mortgage payment and that will make you more qualified to afford the mortgage.

Lower Interest Rate
Interest paid on a loan with 20% down is usually lower than on a loan with less money down. This lower rate will save you lots of money (thousands of dollars) over the life of the loan.

Private Mortgage Insurance (PMI) or lender mortgage insurance is required by lenders who obtain loans in which the down payment is less than 20% of the sale price or appraised value. By putting 20% down, you avoid paying this monthly insurance cost.

With a 20% down payment on a home, you are instantly building equity. (Equity is the difference between the appraised value of your home and how much of your mortgage you have left to pay off.)

Don’t have 20% for a down payment on a home? Read a blog article for ideas on how to save your money to buy a home here.

Want to be pre-qualified to purchase a home? Contact Sibcy Cline Mortgage Services here.

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