Check Out These Top Benefits of a 20% Down Payment For Your Next Home Purchase

When you get ready to buy your first home, you probably hear people telling you to put down at least 20%. That doesn't sound so bad until you do the math. If you want to buy a $200,000 house, 20% comes to $40,0000. Most people don't have that much saved up. These people may make the mistake of buying a home anyway, but it can behoove you to wait until you can put down the correct down payment. Learn why it's wise to put 20% down and check out the benefit of purchasing your home with 20% down.

Private Mortgage Insurance (PMI) Not Required

Buyers must purchase Private Mortgage Insurance (PMI) when purchasing a house without putting 20% down. PMI pays the lender in case you can't make your mortgage payments. It costs anywhere between .58% - 1.86% of your loan amount, increasing the total amount you spend on your house. You will not be able to close on your house if you don't get the insurance. You can potentially drop the coverage later, but you will be stuck with the repercussions if you default on your loan.

Lower Interest Rate

If you can put 20% down on your home, you demonstrate a certain level of financial stability. This means that lenders will be more comfortable offering you a loan at a low interest rate or APR. The interest rate refers to the amount of money you must pay back on the loan to the lender.

When you have a lower interest rate, you will reduce the total amount of money you end up paying for the house. The average APR on a 30-year fixed-rate mortgage falls just under 3%. If you look at a $240,000 house and put $40,000 down, you can get a loan to cover the remaining cost of the house. With a 3% APR, you will pay $246,000 in total, which is a fair deal. However, if you have a 12% APR, you will pay $264,000 for the same house.

Put Yourself Above the Competition

Sellers want to work with people who mean business. When you come to the table with 20% of the cost in hand, people know that you have the finances to make the purchase. If a buyer needs to arrange the loan and borrow the down payment from a family member, it can make a buyer nervous. You will stand out compared to the competition when you put down 20% since only about 50% of buyers who took out a loan put down 20% or higher.

Do not get overly excited to buy your first house. Take your time to strike at the best time and save up as much as possible. Save every month so that you can set yourself up for success when you do find the house of your dreams.