Tuesday, March 26, 2013

Why your down payment should be at least 20 percent


If you’re like most people, you’re planning to have a mortgage in order to pay for your house. It’s almost unavoidable to buy a home without financing.

Conventional wisdom until a couple of decades ago was that a home buyer needed to save at least 20 percent to put down on a house. Recently, though, many people have gotten away from that rule of thumb. In order to promote home ownership, some programs require much less. There are some options that offer zero down.

Simple math

For the sake of this example, the home you’re buying is $200,000. The interest rate is 4 percent. Taxes are 1.5 percent. Private mortgage insurance (more on that later) is 0.5 percent.

Rates calculated using: zillow.com

Lower mortgage payments
Simple math dictates that the more you put down, the less your monthly payment will be. All things being equal, your mortgage payment drops $191 if you have 20 percent down as opposed to zero down. As a new homeowner, that will definitely help your monthly budget.

No mortgage-insurance fees
Private mortgage insurance (PMI) protects the lender in case you cannot pay the mortgage. PMI is required if your down payment is less than 20 percent in most cases. Your lender requires the fee be paid until you reach 20 percent equity in your home. Mortgage insurance can be expensive, ranging from 0.5 to 1 percent of the home's value annually.

Lower interest rate
With a larger down payment, you could qualify for lower interest rates, a fact not taken into account in the example above. Using the same example, if your interest rate dropped to 3.5 percent, your monthly mortgage payment would be $926.80 and the total interest payment would be $98,649.74. Compared to the 10 percent down payment in our example, you’d save $30,715 over the life of the loan in interest and PMI payments just by paying an extra $10,000 down.

Patience pays

As stated, the example above is simple math, but there’s nothing simple about mortgage math. Ask your REALTOR® and mortgage lender to crunch the numbers for you. Patience pays: taking the time to save money for a down payment offers solid return on investment. Over a 30-year mortgage, having a bigger down payment can save you tens of thousands of dollars on your starter home, helps you build equity faster and puts you on firmer financial footing.


  1. Great goods from you, man. I've understand your stuff previous to and you're just extremely fantastic.
    I really like what you've acquired here, certainly like what you are saying and the way in which you say it. You make it enjoyable and you still care for to keep it wise. I cant wait to read far more from you. This is actually a great web site.

    Here is my website - mens stuhrling original watches

  2. Good post however , I was wondering if you could write
    a litte more on this topic? I'd be very thankful if you could elaborate a little bit more. Kudos!

    Feel free to surf to my website - akribos xxiv

  3. Hello, after reading this awesome post i am
    too glad to share my knowledge here with friends.

    My web blog: Stuhrling Original Watches For Women

  4. I like the helpful info you provide in your articles. I'll bookmark your weblog and check again here regularly. I am quite sure I will learn lots of new stuff right here! Best of luck for the next!

    my web site :: mens relic watches

  5. Hello, I enjoy reading through your article. I wanted to write a little comment to support you.

    My web site ... womens victorinox watches

  6. What's Taking place i am new to this, I stumbled upon this I've discovered It absolutely useful and it has helped me out loads.
    I'm hoping to give a contribution & aid different users like its helped me. Great job.

    Here is my web-site - radio control planes

  7. I have read so many articles or reviews on the topic of
    the blogger lovers however this article is really a nice paragraph, keep
    it up.

    my weblog: www.internetsocial.cat

  8. I am genuinely grateful to the holder of this
    web page who has shared this impressive article at at this

    my web site http://gloup.broodle.org/index.php?do=/profile-7910/info