After the application of a home loan, you will receive two documents, a loan estimate, and closing disclosure. On the surface, these documents are identical but they both serve slightly different purposes. Up Next: Expenses To Expect In The First Year Of Homeownership Here is what you need to know about the differences between these […]
How Low Down Payments Affect Kansas City Mortgage Rates
As the housing market continues to improve, low down payments are once again being offered by lenders, especially those backed by governmental organizations. Both first time homebuyers and current homeowners may be enticed to settle on a low down payment on their future home, but it’s important to know the affects of this decision. Low down payments very rarely lead to a longer term, therefore you are more likely to have larger monthly payments caused by:
- A higher Kansas City mortgage rate
- Private mortgage insurance
Higher Interest Rates
A low down payment leads to a higher loan-to-value ratio, which is determined by the loan amount divided by the appraised value of your home. The higher the loan-to-value ratio, the higher the Kansas City mortgage rate. Interest rates may vary from lender to lender, so be sure to find a Kansas City mortgage company that’s right for you.
Private Mortgage Insurance (PMI)
If you provide a down payment that is less than 20% of your home’s value, you are required to pay private mortgage insurance, or “PMI,” regardless of the type of loan you receive. Since your lender assumes more risk from a lower down payment if you default on your loan, PMI protects them from any discrepancies.
Larger Monthly Payments
Higher interest rates combined with private mortgage insurance leads to a larger monthly Kansas City mortgage payment. If you’re not able to make your monthly payments, this can lead to foreclosure. While some people can temporarily reduce or permanently reduce their Kansas City mortgage rates, this can lead to extensive paperwork and they are not always successful. Before settling on a lower down payment, talk to your loan officer about the amount of money you’ll pay over time to ensure you can afford it.