There are real advantages to buying a home with a down payment. Zero-down mortgages still exist, and the ability to buy a home without a down payment may seem exciting.
Nevertheless, you should consider slowing down and saving up. A down payment can give you an edge.
Do you have a lower credit score? Are you a non-traditional buyer, such as a self-employed individual?
If so, having a down payment can strengthen your mortgage application and help you get approval for programs you might have missed out on before, while saving you money on future interest payments and possible MIP or PMI premiums. While bad credit mortgage loans exist, the rates and fees—and the resulting monthly payment—can be very high.
In many cases, you can get yourself into a more traditional loan program by bringing some money to the table. If you do, you’ll increase your chances of scoring a home you can keep because the mortgage loan payments remain low enough for comfortable budgeting.
Private mortgage insurance costs anywhere from 0.3% to 2% of a loan each year. That adds up: a $400,000 loan with a 1% PMI could mean adding an extra $333.33 to your mortgage payment every month.
By making a down payment of 20% or more, you skip PMI entirely, which saves you a great deal of money over time.
Personal savings, inheritance funds, and proceeds from the sale of your existing home will generally qualify you for any type of mortgage you want.
If you’re using gift funds from friends or from down payment assistance programs, your options will shrink.
Some funding sources are unacceptable no matter what type of home loan you’re pursuing. For example, cash advances, personal loans, and credit card money can’t be used for down payments.
Cash from unspecified sources can also be difficult unless it’s been in your account for a while.
You’re going to have your mortgage loan for 15 to 30 years. A lot can happen during that time.
The lower your monthly payment is, the more insulated you become against the slings and arrows of fickle fortune. In other words: you increase your chances of keeping that home if you keep the payments as low as possible.
For every $1000 you put down, you lower your payment by $6 to $8. That means putting $80,000 on a $400,000 home can lower your payment by $500 to $550.
What could you do with an extra $500 per month in your budget?
Being upside down on your home can create a variety of problems. A down payment can help you side-step that scenario by ensuring your home is worth more than what you owe on it almost immediately.
Equity can be a lifesaver in a variety of scenarios. It can give you the resources to handle a sudden, costly maintenance issue. It can give you the power to refinance in a few years, lowering your payment even more. It can ensure that you are able to sell the house and move if you get a good opportunity halfway across the country.
Equity is power. Growing your equity from Day 1 is smart.
We can help you secure the right mortgage and can advise you on your best financial debt moves. If a down payment doesn’t seem feasible for you right now, we can still help you get into the right loan. If it does, we can help you secure the best terms and fees.
Ready to get started? Contact Alex to start evaluating your options today!