Why You Should Make a Larger Down Payment
Buying a new home can be as stressful as it is exciting. You have a lot of important decisions to make, one of which happens to be regarding the down payment. Do you really need to put all the money you have saved into your down payment? If you have been approved to put less down, is it smarter to keep that money in a bank? Here are six reasons why it makes more sense to put as much down on your home as you possibly can.
Budget-friendly Payments – When the month comes and you are off work several days with the flu or you have to pay an unexpected car repair and vet bill in the same week, you will be very grateful for the smaller payment. Putting more money down on your home means you have to pay less every month.
Lower Lifetime Cost of Credit – A small variation in interest rate may not seem important, but it will have a huge impact on your lifetime cost of credit. Large down payments are typically rewarded with smaller interest rates.
More Attractive to Lenders – Unless you have flawless credit and a very established work history, you can use all the help you can get in looking attractive to lenders. When you put a large sum of money down, you appear more invested and have an easier chance of being approved.
Don’t Have to Factor Mortgage Insurance into the Budget – On top of your monthly payment; you already have to factor home owner’s insurance, taxes, utilities, and upgrades and repairs into your monthly budget. What you may not know is that if your down payment is less than 20 percent, you will also need private mortgage insurance.
Avoid Being Upside Down – “Upside down” is simply a nicer term for “negative equity.” The last thing you want to deal with is being in a situation where you owe more on your home than what it’s worth. You may think you are going to live there forever, but life is full of unexpected surprises.
Principal Payments Are More Achievable – If you have a smaller monthly payment there may be months where you have enough extra in your budget to make principal payments. There is a great sense of achievement that comes along with paying off a mortgage before it’s time.
It can be tempting to put less money down, especially if you can get approved for a smaller down payment. However, can be in your best interest to apply more cash to the down payment, as it will end up saving you money in the long run.