The Down Payment Four Great Reasons To Make The Largest Down Payment You Can Afford

The Down Payment Four Great Reasons To Make The Largest Down Payment You Can Afford

Four Reasons


If you are looking to purchase a new home, you have probably heard lots of advice about down payments.  About how it is okay to just have a five percent down payment – you will still get approved.  About how you should make the down payment as small as possible to avoid cash flow problems.


In truth, you are actually better off making the largest down payment you can possibly afford.  Even if you have to slice up other areas of your budget, save for a few more years before you buy, or take a second job on the weekends.  It will be worth it in the end.  Here are just four reasons why you should make the largest down payment possible.


You Can Avoid Useless Insurance Premiums


Although you can buy a house with as little as a five percent down payment, it is in your best interest to make a much larger down payment if you can do so.  Mortgage insurance premiums can be as high as one percent of the loan’s value, which means until you have invested 20 percent of the home’s value in equity, you will have to pay an extra one percent every year.  If you pay at least 20 percent of the purchase price upfront, you will be able to avoid having to get private mortgage insurance – so you keep more of your money in your own pocket.


You Will Pay Much Less Interest


The less you have to borrow, the less you have to pay back – for more reasons than one.  When you take out a mortgage, the interest rate applies to the principal amount that you owe – and over time, the interest can run on top of interest, quickly outpacing the original sum.  Having a larger down payment means the interest applies to a smaller sum, and that means it accumulates slower and ends up being a smaller amount over time.


You Will Have More Ammunition In A Bidding War


Offering up a larger down payment is also a great way to make sure you get your dream house, especially if it is a popular property with multiple offers.  The seller is not just going to consider who offers the most money – they are also going to consider which buyer is most likely to get a mortgage.  After all, failing to get a mortgage is one of the most common reasons why real estate deals fail.


If you can show that you are able to make a larger down payment, you will have a better shot at getting a mortgage – and that means sellers will prioritize you over other buyers.


You Will Get A Great Start On Building Equity


Your home equity is equal to the difference between your home’s fair market value and the amount of debt invested into the home.  If you do not have enough equity in your home and home prices in your neighborhood fall, you may find yourself in a situation where you owe more money on your home than it is worth – a phenomenon known as negative equity.  By making the largest possible down payment you can, you will have a great head start on building your home’s equity – which may help you profit if you decide to sell in the future.


Help Getting The Right Lending Partner


Talk to your Martin Real Estate Advisors, a JP & Associates Realtors®  Company, Trusted Advisors | REALTORS® or Text "DP" to (469) 262-5411 to find out more about this important topic, and for a referral to one of our lending partners.


Annette Bruen Headshot
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Phone: 972-977-3221
Dated: August 8th 2015
Views: 1,417
About Annette: Before making the move to help families realize their real estate dreams, Annette made her professio...

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