How Much Should Your Down Payment Be?

Interest rates are so low and homes are so affordable right now, that many people are rushing to buy a home before interest rates start to rise. Although it is a great time to buy, and there are some low down payment mortgage loan options available, there are a few reasons why taking the time to save a larger down payment would be a good idea.

Interest rates are low, but the lower the loan to value ratio on your purchase, the better your chances are of getting the best rates available. Providing a larger down payment on your home purchase bring the mortgage amount down so that there is a greater difference between the amount that you owe on the home and the actual value of the property.

The loan to value ratio is one of the issues causing so many problems for homeowners in trouble right now. Finding that they have over extended themselves and trying to sell the home, only to find that the value in the current market is less than what they owe on the home. Providing a larger down payment when you buy your home can help to keep you from being underwater in your mortgage when the market gets tough.

Putting more money down on your home purchase can save you money in a number of ways. Besides the already mentioned lower interest rates, a larger down payment will also mean a lower monthly mortgage payment and that will save you thousands over the life of the loan. Loans with a down payment of less than 20% will usually require that you pay mortgage insurance (PMI). The cost of mortgage insurance could be .5-1% of the value of the home annually. This could add thousands of dollars to your payments each year without actually being applied to your home at all.

It is a great time to buy a house, but history should teach us to be smart buyers. No one can see what the real estate market will do in the future, so the smart thing to do is not to rush into things. Taking the extra time to save a larger down payment will be well worth it in the long run. Savings both monthly and over the life of your loan, along with the lower risk of ending up owing more than your home is worth are but a few of the advantages to saving for a larger down payment.

Want to find out if you have what it takes to be a Real Estate Agent or Broker?

About David GoldsteinDavid Goldstein is an Owner and Founding Partner of Express Schools, LLC. which operates online education providers Real Estate Express, Insurance License Express and License Tutor. Follow him on Twitter.

Comments / Questions

Leave A Comment

Your email address will not be published. Required fields are marked *

Leave A Comment

Real Estate License Bird 1a

More than 200,000 real estate professionals got their start with Real Estate Express. See what they are achieving.

Hear what they have to say.

See More Reviews