If you’re planning to buy a new home, you may be wondering about the down payment. Loan programs require down payments as low as 3.5% for FHA loans and there are conventional loans offering as low as 5%. While you have a lot of options, there are three strong benefits to making a 20% down payment on your home.
Lower Interest Rates
A borrower who can put 20% down on a home is considered a lower-risk buyer. In addition, the lender only needs to recover 80% of the home’s value in the event of a default. Therefore, the interest rates are usually more favorable than that of a higher loan-to-value program.
A lower loan amount also means there is a smaller amount of money subject to interest. Over the life of the loan, putting 20% down on the home will save you thousands of dollars in interest.
A Stronger Offer
In a highly competitive market, sellers are more likely to accept an offer with a higher down payment. You may be considered more financially stable and thus better able to close on the loan and sale.
PMI (private mortgage insurance) is an additional fee usually added to conventional home loans when less than 20% was provided as a down payment. This provides insurance to the lender in the event of a default.
Ultimately, work with your lender to understand your options and identify the best loan program for your needs, but putting 20% down on a home loan can provide some nice perks.