Let us say you finally found a house that ticks all of the boxes in your checklist — a spacious yard with a garden and a pond, a modern fireplace, a deck to host outdoor parties, a basement that you can turn into a game room, a two-car garage, or a swimming pool — so what happens next? It is time to check your finances, of course.
Finding a reliable lender is only the first step in owning your dream home, as you also have to determine whether you have enough money for a down payment. Sure, you are confident in being able to pay your monthly dues, but what about the funds that you need now? You have to prove to the seller that you are serious about buying their property.
The average down payment of first-time homebuyers, as research suggests, is between 5% and 10%. This is far from the ideal 20%, which is the standard to qualify for better rates and deals. It is often a big challenge to hit the 20% mark, so many buyers choose the easier route of paying a lesser down payment in order to fulfil their dream of owning a home.
Paying Less Than the Ideal Amount
Coming up with 20% down payment is now becoming impractical and there a now a number of loan programs that allow little to no initial payment. This is more common in government-backed mortgages like FHA and VA loans, but there are also mortgage companies that offer low down payment conventional loans. This lets you buy a home and get a mortgage even without substantial savings.
Benefits of Paying 20%
A majority of Salt Lake City mortgage lenders note that it is difficult to come up with a 20% down payment, but there are many good reasons to hit this mark. Apart from letting you get the best rates and terms, it can also help you avoid the extra cost of private mortgage insurance or PMI. This is required if you pay less than 20% down payment and protects the lender in case you default on the loan.
Other benefits of paying 20% down payment include:
- Enjoy smaller monthly payments
- Pay less over the life of the loan
- Build home equity faster
- Pay off your balance easier and faster
Just Do Not Drain Your Wallet
While aiming for 20% is recommended, coming up with this amount should not drain your wallet or savings. Take note that you still need have to save money for other expenses like closing costs, homeowner’s insurance, and many others. There are also things to account for, such as moving costs, new furniture and appliances, and basic maintenance. If 20% is too much of a burden to you, it is okay to pay a lower down payment.
Consider your financial situation when deciding how much down payment you should make. You can also benefit from talking to a reliable lender to learn more about the different types of mortgages that fit your goal and situations.