How much of a down payment do you need?

As you prepare for a home purchase, you save for a down payment. Perhaps your down payment savings equals 30 percent (or more) of the purchase price of the home you want to buy. Now your question is, do you put down all 30 percent or just put down 20 percent?

Your decision is based on several factors
Let’s assume the home purchase price is $150,000, and you have saved $45,000, or 30 percent of the price. You are trying to decide if your down payment should be the full $45,000 saved, or the traditional 20 percent (which would be $30,000).

First, consider if you have other debt that you would like to pay off. It may be a good idea then to use the additional $15,000 saved to pay off other debt, especially if it carries a higher interest rate than your mortgage.

Second, make sure you have enough cash to cover closing costs and other expenses that arise when moving into a new home. You may have furniture or window coverings to purchase. That extra $15,000 can be used toward those purchases.

Last, maybe you would feel better if you had more in savings. You can put the additional $15,000 into an IRA,college savings plan or other account where you save money.

You may decide it is best for you to go ahead and put down 30 percent of the home purchase price. This gives you equity in your home much more quickly. In addition, it can lower your monthly mortgage payments to make them more affordable.

When making your decision, remember that by putting down at least 20 percent you will avoid paying private mortgage insurance (PMI). Most lenders require PMI on mortgages with down payments of less than 20 percent.

It is a great situation to be in, deciding whether or not to make a down payment of 30 percent or 20 percent. Your success in saving for a down payment now gives you some flexibility in deciding how much to put down on your new home.

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