The Importance of a Down Payment on Your Mortgage
- Date: 2007-02-15 - Word Count: 375
Share This!
When purchasing a new home, your mortgage options are dependent on a number of factors. Most people understand that the down payment is one of the elements, but not why it is important.
A down payment is simply the amount of money you put towards a purchase independent of financing. For many people, it is the money they have saved up over time. These savings can be from stocks, a savings account and even a loan from their 401(k) retirement plan. Regardless of the source, the amount of the down payment goes a long way towards expanding or contracting your mortgage options.
In the old days, you could expect a lender to require you to pay 10 to 20 percent down before they would finance your purchase. These days, this isn't really true anymore. From government programs to lenders offering unique financing, you can actually buy by putting next to nothing down. Many people jump on such financing without asking the fundamental question of whether doing so is a good idea.
In a perfect world, you should put down 20 percent or more on a home purchase. Why? Well, there are a couple of reasons. First, lenders will waive any requirement that you have and pay for private mortgage insurance if you put this amount or more down. That can save you a couple hundred bucks a month. Second, the magic twenty percent figure lowers your risk profile to lenders, meaning a lender is going to be willing to overlook credit blemishes and other "problems" you might have. Finally, a twenty percent down payment also creates immediate equity in your home. You can access this equity should a financial situation arise where you need cash.
Obviously, the vast majority of borrowers do not put 20 percent down. It is no secret home prices are high these days. Trying to put 20 percent down on a $400,000 home means you need to come up with $80,000. That is a big chunk of change for many of us, particularly first time buyers. In such a situation, you need to look to other mortgage options. Just understand you are going to pay more in interest rates and points.
Raynor James is with FSBOAmerica.org - get information on mortgage loans.
A down payment is simply the amount of money you put towards a purchase independent of financing. For many people, it is the money they have saved up over time. These savings can be from stocks, a savings account and even a loan from their 401(k) retirement plan. Regardless of the source, the amount of the down payment goes a long way towards expanding or contracting your mortgage options.
In the old days, you could expect a lender to require you to pay 10 to 20 percent down before they would finance your purchase. These days, this isn't really true anymore. From government programs to lenders offering unique financing, you can actually buy by putting next to nothing down. Many people jump on such financing without asking the fundamental question of whether doing so is a good idea.
In a perfect world, you should put down 20 percent or more on a home purchase. Why? Well, there are a couple of reasons. First, lenders will waive any requirement that you have and pay for private mortgage insurance if you put this amount or more down. That can save you a couple hundred bucks a month. Second, the magic twenty percent figure lowers your risk profile to lenders, meaning a lender is going to be willing to overlook credit blemishes and other "problems" you might have. Finally, a twenty percent down payment also creates immediate equity in your home. You can access this equity should a financial situation arise where you need cash.
Obviously, the vast majority of borrowers do not put 20 percent down. It is no secret home prices are high these days. Trying to put 20 percent down on a $400,000 home means you need to come up with $80,000. That is a big chunk of change for many of us, particularly first time buyers. In such a situation, you need to look to other mortgage options. Just understand you are going to pay more in interest rates and points.
Raynor James is with FSBOAmerica.org - get information on mortgage loans.
Related Tags: finance, loan, mortgage, home, payment, house, financing, percent, down, pmi
Your Article Search Directory : Find in Articles
Recent articles in this category:
- 5 Reasons to Buy Jasper Real Estate
Jasper is a small town in North Georgia and it is growing rapidly. Since North Georgia Foreclosures - Ellijay Real Estate
Ellijay Georgia has always been known for it's outdoor activities and seasonal festivals. Downtown E - How to Deal With Blocked Drains
A blocked drain is an occurrence that happens eventually to all households. You may have experienced - The Benefits of Hiring a Plumbing Consultant
Your dream home may not always be brand new, with fresh paint and home essentials. There are certain - The Worst Mistake You Can Make When You Apply to Rent a Home
A whole new class of people has become renters and potential renters in America during the last thre - State of Individual Real Estate Markets
Everybody is well aware of the hit that the real estate market has taken over the past three years. - Thoughts on Avoiding the Landlord Trap
I've heard several people say they would never invest in a multifamily rental property because they - An Idea to Increase the Bottom Line of Your Investment Property
Are you pretty sure that you've already maximized the income coming from your property? If you've cl - Finding the Value of a Piece of Investment Real Estate
There is a lot of confusion about how much investment property is really worth. We'll look at three - Arkansas Land For Sale - Search Engine Optimization and Your Website
If you have Arkansas land for sale and are interested in advertising it on your website I have a few
Most viewed articles in this category:
- How High Did Home Prices Really Go
The U.S. Census Bureau released data on Tuesday that revealed where the nation's hottest markets wer - New Homeowners Tips for Household Safety
With so many items on their ¡°buying a home¡± checklist, few homeowners take into considerati - Truth About VA Foreclosures
Many people now days are finding themselves out of work and not being able to make the mortgage paym - Avoid Rookie Real Estate Investing Mistakes
When Robert Kiyosaki, author of the Rich Dad book series, bought his first property he was, of cours - Finding The Perfect Roommate On Craigslist
Craigslist, Roommates, and The Concerns Craigslist is "great" when it comes to looking for housing - The Forgotten Secret To Selling Property - Simple, Quick And Cheap
Why spend big dollars trying to get people to drive a long way to see your house, when your best pro - Get Amazing Results Selling Real Estate Online
This is the age of the internet. Why not take advantage of the widespread use of the internet to ad - Dallas Real Estate Information
In the United States, Dallas is considered as the second leading state according to the area. If any - The Largest Private Equity Indian Real Estate Deal
In the largest private equity deal won by the real estate sector, Morgan Stanley Real Estate has inv - Fractional Real Estate Ownership
Fractional ownership of vacation ski condos is growing in popularity. Park City Utah a popular ski t
