When it comes to buying a home, buyers need to be prepared for every aspect of the process. From finding a reliable Realtor, to settling on a price and closing the deal, there are a lot of important pieces of the puzzle. One of these is deciding how much money you will be using for the down payment of a house. A downpayment on a home is money that the homebuyers provide for the house upfront. This is separte from the mortgage they will be paying monthly after they have compelted the buying process. Determining how much to put as a downpayment is always a challenge as you have to examine your finances to make the best possible solution. Just like with anything you need to pay off, the more you put down upfront the less you will pay later on. It is good to put 20 percent of the sales price as your down payment. While the general rule of thumb is between three and 20 percent, putting down 20 has many benefits.
Three Benefits of A 20% Downpayment
- You'll Have A Small Loan - By having a large down payment, you borrow less money from the bank in loans. In turn, you will then have to pay less on your monthly payments. If you have a smaller downpayment then you will have a much higher monthly mortgage rate.
- Lower Overall Costs - When you borrow less, by having a 20 percent down payment, you will pay less interest on your loan. This is because your interest will be calculated using a lower loan amount. In addition, with a 20 percent down payment you will typically not have to pay for mortage insurance which usually increases the monthly rate.
- You Start With More Equity - By putting down a larger down payment, 20 percent, you not only save yourself on monthly payments, you also save yourself in the long run. When you make a larger down payment, you have a cushion in case home prices decline. If you have a smaller down payment then you end up owing more than your home is worth which will make it harder to sell or refinance your home.