What Down Payment Size is Right For You?

Is a Large Down Payment the Best Choice?First time home buyers may think homeownership is not a possibility as they cannot afford to put down a large down payment at the present time. Not being able to put down 20 percent does not mean that individuals cannot buy a home. In fact, many homebuyers have chosen to take out a home mortgage loan and have put down much less than 20 percent. There are even programs that make it possible to buy a home with zero down. However, what is the best choice for homebuyers, should they buy with a small down payment or wait until they can put down a larger sum?

For informational purposes only. Always consult with a licensed mortgage professional before proceeding with any real estate transaction.

What Your Down Payment Means to Lenders

When we look at the conventional lender, they may desire to work with parties who are invested in the property and who are not as likely to default on a home loan. To them, a larger down payment translates to more equity in a home and based on their experience, such borrowers will be more likely to make regular payments. However, they will work with those making a small down payment but such parties should expect different terms and conditions.

Is It Better to Wait to Make a Large Down Payment?

Generally speaking, approved applicants putting down 20 percent might expect lower interest rates on their loan and are not subject to paying Private Mortgage Insurance (PMI). PMI payments would be required by those making a small down payment. These payments go directly to the conventional lender. PMI acts as insurance to a lender in case of default and does not go towards either the balance or interest on a home loan. In order to avoid these additional payments, some choose to make a larger down payment. Do keep in mind PMI may be paid on FHA loans as well. PMI on an FHA mortgage loan will continue for the lifetime of a loan.

Should Buyers Buy a Home with a Small Down Payment?

There are a number of programs, such as VA loans and USDA loans, making homeownership more accessible for those who are not making a large down payment. And in some cases, these types of loans may offer better terms that those offered from their conventional lending institution. First time Alexandria South home buyers can buy with little down but should be aware that they may be paying more on a home loan and its interest over a lifetime of the loan.

In some cases, a few homebuyers may actually be financially able to afford a large down payment, but may go with a smaller down payment. They may decide to do this to conserve their available cash. There are a number of initial costs that go into buying a home, such as closing costs, moving costs and furnishing the new home. In addition, some may want to use those funds toward other investments, rather than include them in a larger down payment.

Know When to Buy

Initial financial considerations aside, it can be a great time in the market to buy a home. Homes may be more affordable than in previous years due to lower interest rates. In addition, the shortage of homes in certain areas may speak to buying a home today vs. waiting. Speak with an agent to learn more about how buying in a buyer's market can make for sellers who are more willing to work with potential buyers.

For informational purposes only. Always consult with a licensed mortgage professional before proceeding with any real estate transaction.

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