Buying and moving into a new home is one of life’s great experiences, especially if you’re buying your first home. From getting that pre-approval to the “yes!” response on an offer to closing and moving in, every step is exciting. And while the process is engaging and fun, it’s important to prepare for moving day […]
Why You May Want To Consider A Lower Down Payment
“How much should I put down on a home?”
A down payment is how much cash you initially pay on a home directly to the seller. When you pay the traditional 20% down payment you will get benefits such as a better mortgage interest rate, lower upfront fees, lower ongoing fees, and more equity in your home from the get-go.
But what if you don’t want to or cannot put down 20%? You may want to consider a lower down payment. Why?
Get Into The Housing Market Sooner
When you save up the money for a home it can take years of careful savings to save up to 20% of a home price. By putting down a smaller down payment, you will be able to get into the housing market sooner—especially if you are a first time homebuyer.
There are many first time homebuyer programs available that will let you put down as little as 3% or no money down. Just remember that these mortgages will have higher interest rates and you may have to pay an upfront fee.
Avoid Draining Your Savings
If you decide to pay the 20% down payment often recommended, you will need to budget carefully to avoid draining your savings account. If you have $28,000 available in your savings for a down payment on a home of $140,000, you will meet the 20% down payment but you will also use up all of your savings in the process.
By putting down $10,000 on the home you will be able to pay on other costs such as closing and other fees while keeping your savings healthy.
Always Discuss Down Payments With Your Lender
Always consider both the long- and short-term benefits and consequences of putting down a large or small down payment. What worked for one homeowner may not necessarily work for you. Remember that there are many beginner homebuyer programs and mortgages that let you put down less than 20%, based on your credit score and other factors.