Buying a new home is a big financial milestone and an important part of this process is securing the right mortgage. The down payment you make will have a big impact on the home loan options. This is basically the initial payment you have to make for the purchase price of the home.
Are you buying a house for the first time? Then you need to know what your home loan options are and what affects this. Many lenders will need a minimum down payment amount so that you can qualify for different loan programmes. There are flexible down payment requirements from government backed loans and you will be able to qualify for these with lower down payments. But generally, conventional mortgages will need you to make a down payment of about 3% to 20% of the purchase price of the home you are considering. The size of the down payment will have an impact on the interest rate you receive on your mortgage. If you put a larger down payment, you will be seen as lower risk by the lenders and they will take this as a greater commitment from your side. This will reduce their exposure to potential losses. Because of this assurance, you may be eligible for lower interest rates on the home loan. This can save a lot of money. But if you put smaller down payments, the interest rate will go higher as now the lender will have an increased risk.
The need for private mortgage insurance will also be affected by down payments.
This is required for conventional loans of your down payment are less than 20%. The lender will be protected by this insurance in case you default on the loan. And this is added to the monthly mortgage payment. The need for private mortgage insurance can be waived if you make a larger down payment. Or it can reduce the duration of this coverage so that you can save money on monthly mortgage payments over time. Another aspect influenced by the size of your down payment is the terms of your mortgage. This includes monthly payments you need to make and the repayment period. If you make larger down payments, you will be able to qualify for shorter loan terms. This can be a mortgage that can span 15 or 20 years. But with smaller down payments you will need to contend with longer loan terms which can go up to 30 years or more.
You can build equity in your home quickly
When you make alarger down payment and this will offer you financial security in the future. Equity is the difference between the current market value of your home and the balance that is remaining on the mortgage. When you put a large down payment or more money at the initial stage you will be able to start with a higher equity position. You will have more stake in your home’s value. This is a good position if you decide to sell the house and relocate.
