Photo: Flickr via robinelaine
If you’ve ever purchased a home, you know how important it is to save a sizable down payment to get the best possible mortgage loan from your bank or credit union of choice, and to look as attractive as possible to the seller.According to real estate expert Michael Corbett, a 20% down payment is the best possible balance between effort needed to save it up and bang for your down-payment buck. Here’s why.
According to Corbett, writing at Trulia, points out that before the housing market downturn, people were getting accustomed to buying home with 10% or even no down payment at all if they qualified for a full-price loan, and now that things are starting to look up (at least for buyers) it’s time to reiterate how important the 20% rule really is.
He lists seven reasons why 20% of the price range you’re willing to spend is important, but here a few we thought were particularly poignant:
- Skin in the game-20 per cent has been the norm forever. It really serves to ensure that the homebuyer has “skin in the game” and is financially viable for the homeownership responsibility.
- Smaller monthly mortgage payment-More money down means you borrow less, which means you will have a smaller mortgage, which means you will have a smaller, more affordable mortgage payment.
- Lower interest rate-The interest charged on a loan with 20 per cent down is often lower than the interest on a loan with less money down. Your lower interest rate will save you thousands if not tens of thousands of dollars over the life of the loan.
Those are some of the basics, but he also notes that saving that much money immediately gives you equity in the home, and helps you avoid private mortgage insurance, which can be a costly insurance fee attached to your monthly payments, all good reasons to save up the dough.
What do you think? If you’ve purchased a home, how much did you put down? Is 20% overkill? Let us know what you think in the comments below.