The Perks of Putting 20% Down on a Home

Dated: December 23 2021

Views: 8

If you’re thinking of buying a home, you’re probably wondering what you need to save for your down payment. Is it 20% of the purchase price, or could you put down less? While there are lower down payment programs available that allow qualified buyers to put down as little as 3.5%, it’s important to understand the many perks that come with a 20% down payment.

Here are four reasons why putting 20% down may be a great option if it works within your budget.

1. Your Interest Rate May Be Lower

A 20% down payment vs. a 3-5% down payment shows your lender you’re more financially stable and not a large credit risk. The more confident your lender is in your credit score and your ability to pay your loan, the lower the mortgage interest rate they’ll likely be willing to give you.

2. You’ll End Up Paying Less for Your Home

The larger your down payment, the smaller your loan amount will be for your mortgage. If you’re able to pay 20% of the cost of your new home at the start of the transaction, you’ll only pay interest on the remaining 80%. If you put down 5%, the additional 15% will be added to your loan and will accrue interest over time. This will end up costing you more over the lifetime of your home loan.

3. Your Offer Will Stand Out in a Competitive Market

In a market where many buyers are competing for the same home, sellers often like to see offers come in with 20% or larger down payments. The seller gains the same confidence as the lender in this scenario. You are seen as a stronger buyer with financing that’s more likely to be approved. Therefore, the deal will be more likely to go through.

4. You Won’t Have To Pay Private Mortgage Insurance (PMI)

What is PMI? According to Freddie Mac:

“For homeowners who put less than 20% down, Private Mortgage Insurance or PMI is an added insurance policy for homeowners that protects the lender if you are unable to pay your mortgage.

It is not the same thing as homeowner’s insurance. It’s a monthly fee, rolled into your mortgage payment, that’s required if you make a down payment less than 20%. . . . Once you’ve built equity of 20% in your home, you can cancel your PMI and remove that expense from your monthly payment.”

As mentioned earlier, if you put down less than 20% when buying a home, your lender will see your loan as having more risk. PMI helps them recover their investment in you if you’re unable to pay your loan. This insurance isn’t required if you’re able to put down 20% or more.

Many times, home sellers looking to move up to a larger or more expensive home are able to take the equity they earn from the sale of their house to put 20% down on their next home. With the equity homeowners have today, it creates a great opportunity to put those savings toward a larger down payment on a new home.

Bottom Line

If you’re looking to buy a home, consider the benefits of 20% down versus a smaller down payment option. Let’s connect so you have expert advice to help make your homeownership goals a reality.

 Get FREE Special Report

Blog author image

Sharad Gupta

Real Estate Sales Leader with over 15 years of diversified experience in real estate sales, property development, and business consulting. With a keen eye to spot real estate opportunities and a natur....

Latest Blog Posts

Achieving the Dream of Homeownership

Homeownership has long been considered the American Dream, and it’s one every American should feel confident and powerful pursuing. But owning a home is also a deeply personal dream. Our

Read More

Charming single family home in the heart of the Warm Springs District in Fremont by Your Home Sold Guaranteed Realty

This home is located in a serene, wooded neighborhood with amazing mountain views. With 3 Bedroom, 2 Bathrooms, it is perfect for anyone looking to take their first step into the world of 

Read More

When Is the Right Time To Sell [INFOGRAPHIC]

Some HighlightsIf you’re trying to decide when to list your house, the time is now. There are plenty of buyers eagerly waiting for your home to hit the market.The latest data

Read More

Can I Be Turned Down On A Home Loan After Pre-Approval?

When it’s time to purchase a home, one of the first things you should do is get pre-approved for a home loan. In this highly competitive market, mortgage pre-approval is “the ace up your

Read More