January 19, 2022
4 Benefits Of Putting 20% Down on a Home Loan
One of the big questions when purchasing a home is “How much should I save for my down payment?” There are several factors that determine how much you must put down to qualify for your mortgage. This amount usually ranges from 3%-5% but there are many benefits to increasing your down payment. Yes, 20% is considerably more than the minimum required, but doing so, you will ultimately save more money overall!
You May Qualify for a Lower Interest Rate
Many factors are considered when you apply for a mortgage. Lenders look at credit scores, debt-to-income ratios, credit history, employment history, and other factors to determine how much confidence can be placed in you as a borrower. By putting 20% down on a home loan you appear to be more financially stable and less of a risk to the lender. The more confidence your lender has in your ability to pay back your loan, the more likely you are to qualify for a lower interest rate.
You Will Not Have to Pay Private Mortgage Insurance (PMI)
Private Mortgage Insurance (also called PMI) is insurance that protects the lender in case you default on your loan. PMI is not the same as homeowners insurance. PMI payments are added to your monthly payments and the amount varies depending on several factors. It is required for a conventional mortgage with down payments of less than 20%. By putting 20% down before completing the purchase of your home then you eliminate the private mortgage insurance fee. This means your monthly payments will also be less.
Once you have built equity of 20% in your home, you can cancel your private mortgage insurance and that part of your monthly payments will end. If you are selling your current home before buying a new one, you may be able to put the money made in the increased equity of your current home into the down payment of your new one and reach the 20% down.
You Will Be Seen as a Stronger Buyer in the Seller’s Market
Putting 20% down on a home loan indicates that you are more financially stable and therefore a stronger buyer in the eyes of the seller. When a seller accepts an offer they want the home sale to close as simply and quickly as possible. Choosing a buyer that will put 20% down on the home increases the likelihood that the closing will go smoothly and quickly. This makes you a stronger buyer in today’s seller’s market. Your offer may be accepted over those with less appealing offers.
To be seen as the strongest buyer possible, be sure to take advantage of Method’s Full Pre-Approval process too! Full Pre-Approval, along with a 20% down payment, shows sellers that you are the best choice for the purchase of the home!
You Will Pay Less For Your Home Overall
By putting 20% down on your home, you are left with 80% of the home to be financed. Your interest will be calculated based on the 80% price rather than the 93-95% sale price. You will be paying less money in interest over the life of your mortgage and these savings add up substantially!
Method Mortgage is Your Smartest Way Home
Our team of mortgage lenders is here to help you every step of the way. We are here to guide you through the application process and help you make the decision that works best for you. Contact us today to speak with one of our knowledgeable mortgage professionals and we will help you find the smartest way home.