You are eager to buy your first home or must relocate to a new town and you are struggling to come up with the 20% down payment for your new home. There is good news for you. Today's average down payment is less than the "traditional" 20%.
The National Association of Realtors has been tracking the average down payments for several years and evidence supports the claim that 20% is no longer necessary to obtain a home loan.
The average down payment over the last few years has been 12% and 7% for first time home buyers.
There is one caveat to the less than 20% down payment story. When buyers put down less than 20% on a mortgage loan, they are usually required to pay for mortgage insurance. The purpose of mortgage insurance is to protect the lender in the event you default on your loan. The upside of mortgage insurance is you are not stuck paying forever. Mortgage insurance goes away once you reach 20% equity.
Is it better to put 20% down? Here are several reasons to support the 20% down claim.
1. You will not pay for mortgage insurance.
2. Your monthly payment will be lower.
3. You will likely have a lower mortgage interest rate.
4. Lenders are more likely to compete for your business.
How much should you put down? Good question, however, there is no single right answer. Factors that may influence your down payment are:
1. How long you plan to live in the home.
2. The housing market in your area.
3. How much you will need for closing costs, homeowner's insurance, and property taxes.
4. Additional expenses related to setting up a new household.
All good points to consider when planning to purchase your next home.
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