Should You Save 20% for a Down
If you’re planning to buy a new home, you may be wondering about the
down payment. Loan programs require down payments as low as 3.5% for
FHA loans and conventional offers as low as 5%. While you have a lot of
options, there are 4 strong benefits to making a 20% down payment on
- Lower Interest Rates – A borrower who can put 20% down on a
home is considered a lower-risk buyer. In addition, the lender only needs to
recover 80% of the home’s value in the event of a default. Therefore, the
interest rates will be more favorable than that of a higher loan-to-value
- Less Interest Paid – A lower loan amount means there is a smaller
amount of money subject to interest. Over the life of the loan, putting 20%
down on the home will save you thousands of dollars in interest.
- Your Offer is Stronger – In a highly competitive market, sellers are
more likely to accept an offer with a higher down payment. You will be
considered more financially stable and thus better able to close on the loan
- No PMI – PMI (private mortgage insurance) is an additional fee
added to all home loan payments where the value of the home is under
80%. This provides insurance to the lender in the event of a default.
Ultimately, work with your lender to understand your options and identify the
best loan program for your needs, but putting 20% down on a home loan can
provide some nice perks.