Should You Save 20% For a Downpayment?

If you’re planning to buy a new home, you may be wondering about the down payment. Loan programs require down payments as low as 3.5% for FHA loans and conventional offers as low as 5%. While you have a lot of options, there are 4 strong benefits to making a 20% down payment on your home.

1. Lower Interest Rates – A borrower who can put 20% down on a home is considered a lower-risk buyer. In addition, the lender only needs to recover 80% of the home’s value in the event of a default. Therefore, the interest rates will be more favorable than that of a higher loan-to-value program.

2. Less Interest Paid – A lower loan amount means there is a smaller amount of money subject to interest. Over the life of the loan, putting 20% down on the home will save you thousands of dollars in interest.

3. Your Offer is Stronger – In a highly competitive market, sellers are more likely to accept an offer with a higher down payment. You will be considered more financially stable and thus better able to close on the loan and sale.

4. No PMI – PMI (private mortgage insurance) is an additional fee added to all home loan payments where the value of the home is under 80%. This provides insurance to the lender in the event of a default.

Ultimately, work with your lender to understand your options and identify the best loan program for your needs, but putting 20% down on a home loan can provide some nice perks.