We are always told that you need a twenty percent down payment for a home. When it comes to Conventional financing, it was a must, but neither of these statements are true. Yes, it is better to put more money down on a home. This eliminates the need for PMI (private mortgage insurance that will cost you a bit more on the mortgage), and more of the initial loan balance is paid down. However, there are some cases in which a lower down payment could work out better for you.
The Cons of a Smaller Down Payment
One of the cons of submitting a smaller down payment with a home purchase is that you will definitely be required to pay for private mortgage insurance. This is insurance towards the lender if you are unable to pay your mortgage. Once your loan to value ratio drops below seventy percent, the PMI can be taken off your mortgage. Another con is that with a lesser amount down, some homes may be out of your reach to afford and will limit your home search options.
The Pros of a Smaller Down Payment
Instead of putting your money towards a down payment, you could save some. Therefore, allowing yourself some wiggle room for other expenses that could come with buying a home. By putting down a smaller down payment you could make needed repairs or even just save for a rainy day. The national home appreciation is about five percent. By putting the smaller amount down, the equity in your home will still be the same!
The Happy Medium
Overall there are many home payments options so don’t limit yourself to just a large or small down payment. Don’t let the intimidation of a down payment prevent you from buying a home. To truly find out which is the right option for you, reach out to your real estate professional or your trusted lender for help!
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For all your home buying or selling needs, ERA Liberty Realty is always there for you! With two local offices to help you no matter where you are, our agents are knowledgeable of the area and the housing trends happening within them. Reach out to us today to get your journey started in West Virginia, Virginia, Maryland, or Washington DC!
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