One of the mortgage myths we hear often is that you must have 20% down to buy a house. While that might have been true decades ago, today, there are many options for considerably less than 20% down. But is that the right call for you? Let’s take a look at some of the pros and cons of financing with 20% down.
Pros for 20% Down Payment:
No Private Mortgage Insurance (PMI)
PMI is insurance that you pay each month that protects the lender if you stop making your loan payments.
Potentially better interest rates
The higher your down payment, the less risk you are to the lender and may entice them to offer you a better rate.
Less interest over time
The higher your down payment, the less you are borrowing. That will translate into you paying less interest over the life of the loan.
Lower monthly payments
As noted above, a larger down payment could mean a lower rate. That coupled with less borrowed will result in a lower monthly payment.
Cons for 20% Down Payment:
More financial risk
Once you put your down payment into your new purchase, it isn’t easy to get it back (unless you sell your house or do a cash-out refi). It is critical to look at your overall financial situation. Ensure you maintain an emergency fund even after you have set aside your money for your down payment and closing costs.
Less money for repairs and other items
With more down payment, you may not have the money available needed to make needed for home repairs and maintenance.
Longer time to save
Saving enough for 20% down could take several years, even longer for some. You could be missing out on appreciation if you are waiting that long to buy.
In the end, like most things regarding your upcoming home purchase, how much you put down depends upon your financial situation, affordability, and your risk appetite.
“o2 Mortgage was very professional and resourceful. They were responsive on any questions that I had. They made the process of home buying smooth and painless. I highly recommend people to consider them.” -Isaac R., Yelp