Benefits of Putting 20% Down on A Home

For those with stellar credit, lenders will likely only request that they put down anywhere from 3.5% to 5% on their home. If you wish to put more money towards other things and your credit is above average, this is a great perk for you. However, if you have some extra wiggle room in your budget, it might be a great idea to put down 20% or more. Here are some benefits associated with putting more down upfront.

No Mortgage Insurance

If you are able to put 20 percent down or more, you do not have to purchase mortgage insurance. This is meant to provide protection for the mortgage lender in the event that you stop making payments and default on your loan. Mortgage insurance is a requirement for home loans that account for over 80 percent of the market value of the property. Loans that are 80 percent or less are much less risky for the lender. If you put at least 20 percent down, you won’t need to worry about this extra expense.

More Equity

The more money you put towards your balance, the higher your equity. This means that kicking off your mortgage deal by putting a sizeable amount of money into it adds to the value of your home. It also lowers your chances of going underwater on your mortgage in the future and higher equity allows you more room for things like repairs and renovations. You can borrow from your equity for these repairs and renovations; however, it is good to keep in mind that this can decrease the market value of your home. You would also have more freedom in terms of your future options such as refinancing or if you want to sell your property at some time in the future.

Less Debt

Putting 20 percent up for a down payment also means that you won’t have to take on as much debt. When you request a loan from a lender you will be able to ask for much less than you otherwise would have which means that your monthly bill will be less expensive. You will also have more room in your budget each month for your other financial obligations and savings or investments. Less overall debt is also a major benefit in terms of your credit since your debt-to-income ratio is a factor that lenders use to determine if you are a good candidate.

Less Risky

The goal for lenders is to assume as little financial risk as possible and with a higher down payment, they can do this. The more you are willing and able to put down the better it will be for you and you will have a higher chance of securing the loan that you want, particularly if your credit isn’t as high as you would like it to be.

Why Some People Don’t

Are you in the process of buying a new home and unsure what to put down? This is a common worry among new buyers and while there are many benefits to putting a large amount of money down, you don’t want to put yourself in a bad financial situation. Some people opt not to put more down than they have to due to a lack of funds and the need to move quickly. If you are in urgent need of a place to stay and have to find a home quickly, you might not have as much time as you need to save up 20 percent for a down payment. This means you will have to prioritize your other expenses and put less down. Although putting less down means that you will have to pay for mortgage insurance, have more overall debt, and become a bit riskier in the eyes of lenders, it also means that you will have more room in your finances to put towards other aspects of your home and personal life. It is not within reach for everyone to put this much down upfront, so do not feel pressure to do so. Everyone’s home buying process is different so make sure to make the decisions that are most fitting for you.