The 20-Percent Down Payment: To Make or Not to Make

Man signing a mortgage loanMany homebuyers today still think that they need to make 20 percent down payment on their mortgages when the truth is far from it. The 20 down rule merely serves as a recommendation since you build up equity faster with it and your mortgage becomes more affordable.

Reality Check

In recent years, however, homebuyers have gotten mortgages at less than 20 percent down. The average down payment today lies at six percent. Even those purchasing second or third homes only place down 14 percent down payments on their mortgages.

Place Less than 20 Percent Down

The statistics above may be good for you to know if you have been stressing over how you can make the 20 down. You can now relax and find a mortgage loan here in Utah from firms such as the Altius Mortgage Group, with a down payment that you can afford.

As you look for one, be informed that you will have to pay private mortgage insurance (PMI).

Extra Expense

Private mortgage insurance acts like protection for your lender in case you default on your mortgage loan. PMI costs extra, and will increase your monthly housing expenses. In spite of this additional cost, however, you may deem it well worth it as long as your housing costs stay within budget.

Other Perks of a Lower Down Payment

A lower down payment also means more money left in your bank if you decided to use only some of your funds for the down payment. You can then use the extra money for home repairs, appliances, or furnishings. You can place the rest in your retirement savings, or you can invest it into a home remodel.

A remodel can raise your home’s value, allowing you to build equity. With more equity, you can eliminate paying for PMI sooner. In the end, a lower down payment can mean more cash flow after a few years that you can save up or invest.

Of course, you can still try to make the 20 percent down payment if you want to. Simply plan everything right to see if a 20 down or a less-than-20 down will work best for you.