In a market where many buyers are competing for the same home, sellers often like to see offers come in with 20% or larger down payments. The seller gains the same confidence as the lender in this scenario. You are seen as a stronger buyer with financing that’s more likely to be approved. Therefore, the deal will be more likely to go through.
4. You Won’t Have To Pay Private Mortgage Insurance (PMI)
What is PMI? According to Freddie Mac:
“For homeowners who put less than 20% down, Private Mortgage Insurance or PMI is an added insurance policy for homeowners that protects the lender if you are unable to pay your mortgage.
It is not the same thing as homeowner's insurance. It's a monthly fee, rolled into your mortgage payment, that’s required if you make a down payment less than 20%.
Once you've built equity of 20% in your home, you can cancel your PMI and remove that expense from your monthly payment.”
As mentioned earlier, if you put down less than 20% when buying a home, your lender will see your loan as having more risk. PMI helps them recover their investment in you if you’re unable to pay your loan. This insurance isn’t required if you’re able to put down 20% or more.
Many times, home sellers looking to move up to a larger or more expensive home are able to take the equity they earn from the sale of their house to put 20% down on their next home. With the equity homeowners have today, it creates a great opportunity to put those savings toward a larger down payment on a new home.
If you’re looking to buy a home, consider the benefits of 20% down versus a smaller down payment option. Let’s connect so you have expert advice to help make your homeownership goals a reality.