When it comes to buying a home, deciding how much of a down payment to make can be a challenge. Freddie Mae and Fannie Mac recently instituted a new program only requiring a 3% down payment. However, the amount of money you pay upfront determines how much your mortgage payment is per month. If you can afford to make a larger down payment, should you? Here are six reasons why you would want to make a larger down payment:
1. Easier Approval. Affording a large down payment is a sign of borrower strength, and it shows lenders that you know how to save. It also helps if you are in a multiple-offer situation, you can offer the seller more money upfront and that can be the key to outbidding other prospective buyers.
2. A Lower Interest Rate. Lower interest rates can save you a significant amount of money over the life of your loan. To get a lower interest rate, you can increase your down payment. Banks and lenders usually offer better interest rates when your loan-to-value ratio is lower.
3. Lower Monthly Payments. A larger down payment means a smaller monthly payment. This means more money in your budget!
4. Mortgage-Free Sooner. You may be more likely to pay your mortgage off in less time, as more of the costs are covered when you open your loan.
5. No Need for Mortgage Insurance. With small down payments, lenders usually require that you take out private mortgage insurance. Private Mortgage Insurance protects the lender if you are unable to pay your mortgage.
6. Protection from Negative Equity. During the last recession, home values fell costing many homeowners equity. As home prices continue to rise again, you can also pay a higher percentage of your home loan sooner, to minimize the likelihood of that happening again.
To understand if you should put down more of a down payment, contact Wisconsin Mortgage Corporation today.
Tags: buying a home, current housing market, Home Buying, homes for sale, Housing Market, living in milwaukee, Milwaukee, milwaukee lifestyle, Mortgage, real estate advice, shorewest, Shorewest Realtors, Wisconsin Mortgage Corporation