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Why 20 percent is the ideal down payment

Buying a house can be one of the most expensive things you do in your adult life, but there are ways to mitigate the costs overall. These include both saving up until you have a considerable sum to put toward your new home and making a hefty down payment. While you can make a down payment as low as five percent, 10 percent is the happy medium and 20 is considered to be the very best overall. If you’re in the market for a new house, here are a few reasons why you should consider making the bigger financial commitment upfront.

  • It makes you very attractive to lenders. Consider that some lending institutes won’t even give you a mortgage unless you have 20 percent to put down upfront. But even with those who might, your case is bolstered by your ability to pay such a solid sum right away, and your lender will have considerably greater confidence in you.
  • More affordable interest rates. Paying more in advance has the benefit of entitling you to pay less over the long term, with interest rates that are lower. You will definitely save thousands over the life of the loan, if not tens of thousands in some cases.
  • No PMI. Lenders need insurance, and that is known as private mortgage insurance, or PMI. Any of the experts at will tell you that it is necessary for loans where the down payment is less than 20 percent and it comes out of your pocket.
  • A larger down payment is safer in a fluctuating housing market. If you buy an expensive house but only put down five percent, and then you lose your job and have to sell when the property value has declined, you will find yourself in quite a bind: your house will be worth less than the mortgage yet paid.

Consider carefully before you decide how much to put down upfront, because the consequences of a low down payment can affect you later in life.

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