6 Reasons to Make a Larger Down Payment

               

When you are about to purchase a house it is no secret you must have a down payment. The more you put down, the more than bank likes you. This tells them, this person has some cash, and is less likely of a risk for defaulting. For you, the more cash you hand over in advance the quicker you can pay off your house, and how much your mortgage payment is. So if it is in your budget to make a down payment that is larger than the average, is it a smart move to do it?

  1. Easier Approval: Having more of a down payment shows a good sign of borrower strength, and shows lenders you know what it takes to save. The chances approval rise dramatically with a large down payment. Also, if you are in a situation where there are multiple offers, offering the seller more upfront can be the X-factor in outbidding everyone else.
  2. A Lower Interest Rate: Mortgage companies, banks, lenders of all kind typically give better interest rates when your loan-to-value ratio is lower. The increase in your down payment lowers this ratio, which in turn lowers risk. Since having a low interest rate will save you a ton in the long run, you win also. Another factor that lowers your interest rate is your credit score. Be sure to know where you stand before you apply for a loan.
  3. Lower Monthly Payments: More down payment up front means less of a mortgage payment down the road. Save up now to pay less later.
  4. Mortgage Free Sooner Than Later: Since you are paying more of the cost now, you can pay the entire mortgage sooner. You will undoubtedly have lower monthly payments, and could even use those savings to pay off an extra principal payment. There are tons of advantages for this.
  5. No Need for Mortgage Insurance: When you have small down payments, lenders will recommend you get mortgage insurance. This protects the lender if you default on your mortgage. The premiums are a cost that you avoid by making a large down payment.
  6. Protection From negative Equity: As many homeowners witnessed last recession, home prices can fall as quickly as they can rise. By having a larger amount of your home paid off before you move in, you reduce the risks of that chances a price decline will put you into a negative equity situation.

As with anything, there is more than one way to look at it. To not make a large down payment means you could get a greater return by investing that money somewhere else. Yes you will have to pay mortgage insurance, and more interest. If you are willing to save up that extra money and delay buying a house right away, you can save yourself a lot of money by paying less on your overall mortgage. Paying it off faster and getting better interest rates is the cool thing to do.

 

Good Luck!

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