In 2017, the average amount that first-time homebuyers put as down payments on home purchases was 5%. While you can put as much down as you want, you might be able to buy a house with even less than this much.
As you prepare to buy a house, you might want to consider the advantages and disadvantages of a large down payment. Understanding these things can help you decide how much you should put down on your home purchase.
Here are some of the most prevalent advantages and disadvantages of a large down payment.
Advantages of a Large Down Payment
As you compare the differences between a large vs. small down payment, you’ll notice some advantages of putting more money down. The first advantage is that you’ll have to borrow less money.
When you borrow less money, you have a smaller loan balance. As a result, your monthly mortgage payments will be lower, and you’ll save money on interest.
Secondly, when you put down a larger payment on your purchase, you might qualify for a lower interest rate. You might also be able to avoid paying private mortgage insurance (PMI) on your loan.
If you’re not sure how much to put down, talk to a local real estate agent. An agent can tell you more advantages of putting more money down.
Talking to a lender is also helpful, especially if you have bad credit. With bad credit, you might need a larger down payment. With poor credit, you might not qualify for a loan without putting more money down.
Disadvantages of a Large Down Payment
After learning some of the advantages of a large down payment, you’ll also need to know the disadvantages. One of the main disadvantages of a larger down payment is that it might take you longer to save up.
If you have some money on hand but want to put a larger down payment on your purchase, you might have to wait a few months or years. It takes time to save up, so this could delay your purchase.
The second disadvantage of a large down payment is that it will tie up your money. If you have to use all the money you have for your down payment, you might struggle when you experience emergency expenses.
If you don’t want to wait to buy a house, you can consider putting a smaller down payment on the purchase. By using less, you can keep more cash in the bank, which will come in handy for emergencies.
Talk to a Lender to Learn More About Your Options
Understanding the advantages and disadvantages of a large down payment can help you decide how much to put down. It’s also essential to speak with a lender to learn more about the loan programs you qualify for and the down payment requirements.
Once you determine how much you need, you can start saving to reach your goal. If you already have enough, you can contact a real estate agent to begin searching for a home to buy.
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