When you’re planning to purchase a home, there are many different factors to take into account. You’ll need to consider your credit report and credit score, how much you can reasonably afford to pay each month towards a mortgage, and the amount you’ll put down on your house.
One persistent home-buying myth is that you are required to put 20% of the home’s total purchase price down. In actuality, that isn’t the case. There are a variety of different Florida home loans available with varying percentages of down payments. In rare cases, you may not be required to put anything down at all (such as with a VA loan). However, down payment requirements typically vary from 3.5% to 20%, depending on the loan you select.
What Are the Benefits of Larger Down Payments?
Putting down a larger down payment for your home has several significant benefits. A few include:
Lower Monthly Payments
The larger amount that you are able to put down on your house, the smaller your monthly payment will be. If you are limited in your monthly income and want to minimize the amount you pay towards your mortgage each month, paying a sizable down payment will help. The amount you put down reduces the total of your loan, which is divided up according to the number of years your loan is for.
Avoid Mortgage Insurance
Private mortgage insurance (PMI) is typically required for homes with equity less than 20% of their value. PMI can be expensive. You’ll typically pay up to 1.75% of your home’s value towards PMI at the time of closing, plus a monthly amount that will be factored into your mortgage payment.
Decreased Interest Rates
Those who are able to put down a significant amount towards their home purchase may potentially benefit from lower interest rates. This goes hand-in-hand with lower monthly payments. In addition, you’ll pay less to the bank over the course of your loan.
Qualify for Future Loans
Having a significant amount of equity in your home allows you to potentially qualify for additional loans in the future. If you decide to refinance your home down the line, you may benefit from lower interest rates or better terms. You’ll also be able to obtain consumer credit, such as credit cards or car loans, under better interest rates.
What Are the Disadvantages of Larger Down Payments?
Putting large payments down on a house can have some specific disadvantages. These include:
Difficult to Save for
For some individuals, it may take years to save up 20% towards the down payment on a house. In these cases, making a smaller down payment may be the only option unless they can commit to several years of savings.
Reduce Savings Already Available
Those individuals who do have savings will find that putting a large amount of money towards their down payment may scrap their emergency reserves. This can be a problem if something happens that requires you to come up with a large amount of money. Thus, some people may prefer to keep a balance between their savings and down payment.
Delays Purchase
Another disadvantage of putting down a significant down payment is that it may delay the time when you are able to purchase a home. This can result in you losing the house you had your heart set on. During the time you are saving, it’s not unusual for housing prices to increase, further delaying your purchase.
Florida Home Loans and Down Payments
The decision of how much to put down on your mortgage will vary by the amount you have available, the type of loan you qualify for, and what you’re comfortable with. When making your decision, make sure to account for monthly mortgage payments and how much you’d like to keep in your savings account for emergencies. A mortgage lender in Florida can assist you in the lending process and provide you with various payment scenarios.
Disclaimer: The opinions expressed above are meant for illustrative purposes only. For specific questions about mortgages or your lending needs, please contact Arco Financial. www.arcofinancial.com. Some restrictions apply. NMLS # 2149692