When buying a home, a variety of financial questions and concerns will move to the forefront. While there are many numbers to keep in mind, 20 percent will come up time after time. This is the magic number when it comes to a minimum down payment.
Basic math shows you that this is equivalent to $20,000 down for every $100,000 worth of home. So, if you’re buying a property for $200,000, a $40,000 down payment is what you should strive for.
Some homebuyers have at least 20 percent to put down, thus putting them in a better position as they go through the mortgage qualification process. Conversely, there are just as many buyers, if not more, who don’t have 20 percent for a down payment.
If you find yourself in the latter position, here are a few things to think about:
- Keep saving: Rather than forge ahead with the home buying process, take a step back and vow to save 20 percent for a down payment before picking your search back up. It may be disappointing to wait, but it’s well worth it in the end.
- Opt for a smaller down payment: Ideally, you’d put down a minimum of 20 percent. However, if this isn’t possible, consider your other options. Ten percent may be more realistic for someone in your shoes. You may even be able to get away with five. Just remember this: the lower your down payment the more money you’re borrowing. And the more you borrow, the higher your monthly payment will be. Also, if you don’t put down at least 20 percent, your lender will charge you private mortgage insurance.
- Lower your target buying price: The higher the cost of the home the more money you need in order to meet the 20 percent mark. If you’re interested in buying now, as opposed to saving up, consider lowing your target buying price. Twenty percent down on a $200,000 house is $40,000. But, if you purchase a $100,000 home, you only need $20,000. Not to mention the fact that your payment will be much lower.
You don’t necessarily need 20 percent down when buying a home with a mortgage, but there are many benefits. In addition to a lower monthly payment, you will:
- Avoid private mortgage insurance
- Find it easier to secure a loan (because there is less risk for the lender)
- Feel more confident in your purchase
So, there you have it. If you’re in the market for a home, consider how much money you’ve saved for a down payment. This will help you decide where to go from here.