While a 20% down payment is still the standard option, there are other options to consider. Potential homeowners should make sure they look through each of their options carefully before making any decision on which mortgage is right for them. This gives them the opportunity to make sure they’re making the best financial decision for their finances now and in the future.
The Standard 20%
The standard mortgage down payment is 20% of the home’s cost. Homeowners who have the cash to pay 20% will not have to worry about mortgage insurance, will have smaller payments to make each month, and will end up paying much less in interest. This can save them a lot of money in the long run. However, the savings might not be equal to what they could have earned if they chose a lower percentage and invested the difference. Looking at the numbers and the potential savings can help homeowners decide if the standard 20% is the right amount, even if they have the cash for it.
Conventional Loans With Less Than 20%
Conventional loans are available for much less than 20% of the home’s value. The home loan downpayment for a conventional loan can be as little as 3% down. However, there are downsides to using a smaller amount. With only 3% down, the homeowner will need to purchase mortgage insurance. Their monthly payments will also be higher, as will their interest. Raising the percentage to 5% or 10% does make a difference and can help them save money on the total costs without having to put down the full 20% for the mortgage, so this is still something potential homeowners might consider.
No Down Payment
The buying a home down payment can be eliminated in some instances. Homeowners who want to live in rural areas might apply for a USDA loan. They will be limited as far as where they can purchase a home, but the loan does not require a down payment and enables the person to make sure they are able to purchase a home even if they do not have any cash to use. Another option is a VA loan. Open to veterans, these loans are not restricted by geography. A veteran can apply for this loan and, if approved, will not need the cash on hand they would need for a traditional loan. These loans are both designed to help people become homeowners even without a significant amount of cash available when they purchase the home.
Choosing the Right Amount Before Applying
It’s important to carefully consider all options before making any decision. While someone might be accepted for a USDA or VA loan, it might be better for them to put down 20% and save money in the long run. On the other hand, even if someone has 20% available to use, they might want to choose a smaller amount and invest the difference so their money will grow faster. Everyone is different, so choosing the right option when buying a home is going to depend on the person’s current and predicted financial situation.
Different options for a down payment exist to help potential homeowners make the right decision for their own financial situation. Those who are interested in purchasing a home in the new future will want to learn more about the mortgage rates today as well as consider the total they have saved for the home, the amount of money they need for the home they want to purchase, and the percentage they’ll want to pay when they obtain a mortgage. Deciding this as early as possible can help them make sure they have the money they need when it’s the right time for them to buy.