Whether it’s your first purchase or a third or fourth, buying a home can be a confusing and complex process. One of the most significant expenses to purchase the home you’re interested in is the down payment needed. This month’s Smarter in 60 topic will help answer your mortgage down payment questions.
Many homebuyers ask much money they’ll need to pay for their down payment. We recommend putting at least 10% down on a home, but 20% down is the gold standard.
That may seem a bit daunting, especially for first-time homebuyers. There are loan programs available that may allow you to put down less than 10%, but with those, you may need to pay private mortgage insurance (PMI). That’s an extra cost added to your monthly mortgage payment. Essentially, PMI protects the lender if you default on the loan. While it may not be expensive, it is money you’ll pay each month that doesn’t help you pay off your loan.
Saving for a more significant down payment is usually the best option to keep your monthly payments lower while at the same time allowing you to avoid PMI for your loan. But saving extra money for the down payment takes hard work and patience. Depending on how much you can save each month, it may mean an additional year or two before you can afford the house you’d like.
There are also loan programs guaranteed by the federal government that require a smaller down payment, so talk to a mortgage lender to figure out what might be your best option.
Making a larger down payment can be an intelligent strategy. You’ll have more equity in your home faster, meaning if you need to establish a home equity loan for improvements, you’ll be able to obtain a more considerable loan amount.
At Peoples, our mortgage lenders can help you determine your down payment options. You can apply online by selecting a lender or calling 888.929.9902 and asking to speak to a mortgage lender.