As soon as you get that dream job, outgrow your apartment or decide it's time to upgrade from your current location, it's time to start saving for a mortgage down payment. The gold standard for the down payment amount on a home has been 20% of the sale price. Depending on where you are in life and whether or not you'll be selling your existing home, this amount may seem out of reach.
The good news is that, while 20% may be desirable, it's not always required. Mortgage lending can be tailored to each borrower. You may find mortgage options out there that allow for variations in the down payment amount. So, how do you decide on a down payment that works for you?
What if you have a large down payment? That means you can pay off your home faster. Think of it like buying a new car. The more you put down up front, the smaller your monthly payments will be and the less you'll have to pay in interest.
A large home down payment also helps to reduce your risk as a borrower. Lenders are more willing to issue mortgages with low interest rates to borrowers who present very little risk. A down payment amount that's 20% or more of the home's value indicates that you're a reliable borrower.
On the other hand, not all borrowers have that much cash available for a down payment when they buy a home. In these cases, there are mortgage options that can help keep your down payment low while still making you eligible to take out a home loan.
For example, Citizens Bank offers low down payment options on fixed rate mortgages, which can help you obtain a mortgage with a set monthly payment and little money required up front. This can benefit your budgeting by saving you money up front and giving you regular monthly payments you can plan for.
You can also choose to pay private mortgage insurance (PMI) so you can have a lower down payment amount. PMI is required when the total loan amount is greater than 80% of the home's value, which creates increased risk. To reduce this risk, the lender will require you to pay this insurance. This risk may still mean you pay a higher interest rate than you would with a lower mortgage down payment.
Every borrower's situation is different, so let us help you determine the right amount for your home down payment. Whether you're a first-time homebuyer just starting to research the process or a seasoned homeowner, you can contact a home loan originator by calling 1-888-514-2300.