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Mortgage Down Payment - Top 5 Reasons to Save for It
Mortgage Down Payment:
Top 5 Reasons to Save for It!
Top 5 Reasons to Save for It!
Saving for a down payment can be one of the more difficult hurdles on your way to getting a mortgage and you may be thinking of going for a low down payment mortgage instead.
Most lenders require at least 5 percent down payment, but they are still making it relatively easy to purchase a house without the traditional 20 percent down payment. However, that does not necessarily mean that this is a good idea! Think about it - the lenders are not trying to be nice. They are interested in loaning you money because it will make them money!
So, here are the top 5 reasons to save for a mortgage down payment:
1. Your monthly payment will be less. For example, on a $100,000 mortgage at 5 percent interest, amortized over 25 years, your monthly payment would be $584.60. However, if you made a down payment of $20,000, you monthly payment would only be $467.68!
2. You may receive a better mortgage rate. Typically, the larger the down payment you have, the better loan terms you can negotiate with the lender. You will be in a much better position to get the best rates, terms, and other features. Less down payment = less bargaining power!
3. You will not have to pay for mortgage loan insurance. If you have less than a 20 percent mortgage down payment, the lender will typically require that you purchase mortgage loan insurance. This can be up to 2.9 percent of the mortgage amount you require. For example, on a $100,000 mortgage, you could have to pay an additional $2,900.
4. You will have a significant level of equity in your home. If you do not put any money down, you will have very little equity in your home for a long time. As this grows, you will build up a potential source of cash in case of an emergency. However, since unexpected events happen, keep a bit of a financial cushion - do not put every last cent into your down payment.
5. You will not have to worry if home prices drop a little. If you have not made a large down payment and the value of your home drops, you may end up in a very unfortunate situation - owing more on your mortgage than your home is actually worth. If you are suddenly forced to move, you will face the stressful situation of somehow having to come up with the difference.
I hope that I have convinced you that scrimping and saving and delaying your home shopping until you can afford to make the traditional loan down payment of 20 percent is the best plan.
Now go start saving for your mortgage down payment!