How much money should I put as a down payment for a Home Mortgage?
There’s been a prevailing mindset for decades that you need 20 percent down to buy a home in Philadelphia or the bank won’t talk to you. What was rarely discussed by bankers is that you can buy a home with less than 20 percent, but the underwriting requirements are tighter and there’s less room for mistakes when applying for a traditional mortgage. Banks wanted buyers to have “skin in the game” to lower the risk of default and foreclosure. Having 20 percent down also eliminates paying for mortgage insurance. However, it’s not the only way to buy a home and a lower down payment can save you money in the long run.
Why Put 20 Percent Down?
Buying a home is the biggest purchase you’ll ever make in your life. You pay the mortgage down over the course of 30 years and it’s a payment that you need to make in order to keep the roof over your head. Putting down more money at the front of the loan reduces the monthly payments and eliminates private mortgage insurance (PMI). And you’ll get offered more mortgage products if you go through a Philadelphia mortgage company instead of a bank. This is because you’re perceived as a lower risk than someone who puts down less money. Additional benefits also come in the form of paying less interest because the principal balance is lower and fees aren’t as high. But you don’t necessarily have to put 20 percent down to get the keys to a home.
The Benefits of Putting Less than 20 Percent Down
If you’re not sure that you’ll stay in your home for 15 years or longer, you can save yourself a lot of money up front by putting less money down and keeping the rest aside. PMI doesn’t add that much to the overall cost of the mortgage and you can refinance into a traditional mortgage with no PMI once you’ve paid off 20 percent of the balance. You also benefit from a payment that doesn’t change over time, unlike rent, and build equity in the home. And you can save money in the form of making an extra payment on the mortgage every year which reduces the amount of interest you pay over time. All of these tactics help you save money while reaping the benefits of homeownership but make sure to talk to a Philadelphia mortgage company about which mortgage repayment strategy makes the most sense. The goal is to come out ahead when you sell your home as opposed to losing money.
Should You Get a Low-Money Down Mortgage?
There’s no one answer to this question because everyone has a different financial situation. A Philadelphia mortgage broker can help you get into a mortgage that makes the most sense for you. But you might be surprised to learn that you can get a conventional mortgage with less than 20 percent down if you meet the criteria. If you can’t, there are many mortgages out there with less stringent lending standards that won’t cost that much more than a conventional.
The most famous low down payment mortgage is the FHA loan. It’s been on the market for over 80 years and is available to anyone who can qualify. It accepts borrowers with less-than-perfect credit, but you can still get an FHA mortgage with good credit. It may be a good option if you decide you don’t want to tie up all of your cash into the home.
It’s a bit of a myth that you need 20 percent down to buy a home. Lenders have created mortgage products that accommodate the needs and of buyers instead of restricting them to one or two types of mortgages. Talk to a Philadelphia mortgage broker about finding a mortgage that fits your needs. You can get into the home of your dreams without feeling like you had to go broke in order to get there.