Pros of Putting 20% Down on your Mortgage

Are you on your way to saving 20% for your down payment? Is it necessary? That depends on your home ownership goals. The best way to be sure is to get in touch with your trusted real estate professional and discuss it. For now, let’s go over some of the pros and cons of a large down payment. 

Look better to lenders

If you’re willing to put 20% down, lenders may see you as a less risky borrower. This could lead to a better bank rate, which means you’ll save money by paying less interest. Be sure to shop around a few banks to find out what type of rates are offered for your exact situation. 

Look better to sellers 

In a competitive market, offering more cash up front may help you stand out to sellers. Since you’ll appear to have your finances in order, you could be taken more seriously. If you’re looking for an edge in a tough market, having a larger down payment may help you out. 

Lower monthly mortgage payment

If you pay more up front, you’ll have a lower monthly payment. This is a great way for you to rebuild your savings after designating so much to the down payment. Hopefully, it leads to more manageable monthly bills down the road.

Eliminates private mortgage insurance on a conventional loan 

In a conventional loan, a down payment under 20% is subject to Private Mortgage Insurance (or PMI). If you can reach that threshold of 20% you won’t have the adding 1-2% insurance fee on top of your monthly payment, which is another way to save money each month over the long term. Be sure to discuss loan types with your real estate professional and your lender. 

Cons of Putting 20% Down on Your Mortgage

Might Take Longer to Save That Much

If you’re in a hurry to buy a home, you’ll have to save more aggressively to accumulate that kind of down payment. It’s a lot of money to save, so naturally it’s going to take some time. Hang in there! If you want to experience the benefits listed above, it could be worth spending the extra time saving up. Here are some tips on how to save for your down payment. 

This may deplete your savings 

Once you’ve taken the time and dedication to save your 20% down payment and it’s time to make the offer, you might end up with nothing left in your savings account. This can be tough when you’re moving into a new home and may have to anticipate repairs. Be sure to keep a separate emergency fund for piece of mind that will not go toward your down payment. 

Not as beneficial when rates are low 

If interest rates are low when you are ready to buy your home, you might not feel the benefits of large down payment as much. That’s because a low rate won’t inflate your monthly payment as much as when rates are very high. So if you have a smaller down payment and a low rate, you still won’t pay as much in interest over time, and might as well keep some of that cash for closing costs, for example. 

The main takeaway is that there are plenty of reasons to place a 20% down payment on a home, and plenty of reasons that approach might not be the most beneficial to you! How do you know which direction is right for you? You’ll have a lot more certainly when you get pre approved. Be sure to discuss this aspect of your home ownership dreams with your real estate professional. We can direct you to experienced lenders. 

Get in touch when you’re ready. Click to connect or call 585-505-7012 for Austin Moyer Team at Coldwell Banker Custom Realty. We look forward to working with you!