One of the most important factors you need to consider when you are buying a home is how much of a down payment you can make.
Choosing a Down Payment Amount
There are pros and cons to larger and smaller down payments. But the more money you can put down on a home, the smaller the remaining mortgage amount and monthly payment will be. Often, your interest rate will also be lower. And by putting down 20% or more, you can also avoid having to pay for private mortgage insurance (PMI). However, mortgage insurance has never been less expensive making higher leverage a reasonable option.
In some cases, it may be relatively simple to settle on a down payment amount—you might only be able to afford so much. But in other situations, it may be more challenging to decide what you can afford.
Let’s say that you are going to take out a mortgage for $100,000. To make a 20% down payment, you would need to pay $20,000 upfront (along with closing costs).
Your savings at this time are $35,000. What should you do?
Technically, you can afford to put 20% down in this situation. But once you do, you will be down to $15,000. You might then pay another $5,000 in closing costs. Now you have just $10,000 in savings; everything else is in equity or gone.
There is no one-size-fits-all answer in this situation. One homebuyer may feel like it is okay to get down this low, confident that they will be able to rebuild quickly. However, another homebuyer may feel that it is too risky to drop so low in savings. Ultimately, you will need to figure out your threshold. In the end, you might put down 20%–or you might decide to stick with 10-15%, and just work toward getting rid of PMI a few years from now.
Contact a Mortgage Broker in Seattle
Contact them at firstname.lastname@example.org to schedule your personal First Time Homebuyers Seminar.
Get Answers to Your Down Payment Questions and Options. You can also visit our instant rate tool https://www.bluesquaremortgage.com/rates/ to see how down payment changes might change your rate. You can also use our Get Rate Alerts feature to regularly track the rate scenario of your choosing. Now you have some things to think about concerning choosing a down payment amount. If you have other questions about down payments, they can answer them during your consultation. To get started, please call them today at (206) 352-6453.
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