Saving up a down payment of twenty percent is no easy feat. In fact, most first time homebuyers opt for FHA loans, where the down payment requirement can be as low as 3.5%. However, it’s always best to put down the largest down payment possible.
Why? Here are a few reasons:
You’ll have a lower interest rate.
The lower your loan-to-value ratio is, the lower your interest rate will be because you represent less of a risk to lenders. The bigger down payment you have, the lower your loan-to-value ratio is. Therefore, you’ll have a lower interest rate if you put down a bigger down payment.
You’ll save money in the long run.
If you can save up more money for a down payment, you’ll end up paying less money because that’s a lesser amount of a loan that you will have to pay interest on eventually. Even adding an extra $5,000 could end up saving you thousands of dollars in the long run.
You’ll be protected with a low appraisal.
If you put forth a big down payment, there will be a big cushion between the home’s value and the about of the loan. If the appraisal gives a value that’s lower than expected, you can be protected from losing the home.