Choosing the Optimum Down Payment Amount

Mortgage CalculatorWhile paying cash for a new home allows you to skip having to decide on what to put into a down payment, most home buyers do not have this luxury. The amount of your down payment can figure heavily into the success of your home-buying process, and directly affects both your financial future as well as what you can expect to pay each month on your home loan.

Less or More?

A Small Downpayment

A down payment amount can range from as little as 3.5% (FHA loan), to as high as 20% of the sales price or greater. Naturally, putting down as little as possible is inviting as it will give you some breathing room for cash emergencies as well as some additional funds for repair and other improvements you wish to do on your home. However, if you can safely afford putting 20% down on a home you escape the cost of private mortgage insurance and avoid higher mortgage payments.

The Benefits of a 20+% Down Payment 

Putting 20% of the sales price down on a home is a big accomplishment for any home-buyer and is often quite difficult given the price of some homes. A higher down payment does provide great benefits and allows you to pay less in interest over the life of the loan while being able to avoid paying private mortgage insurance, which can run anywhere from $45 to $60 per $100,000 in purchase price.

Following are some of the advantages to making a down payment of at least 20%  of the sales price of a home:

  • Lowers size of monthly mortgage payments
  • Reduces risk of defaulting on the mortgage
  • May qualify for a lower interest rate
  • No need to acquire Private Mortgage Insurance
It’s important to discuss your concerns and questions about your down payment with your lender before you begin the home-buying process.

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