You make many decisions when purchasing a home. One of these is how much of a down payment to make. In the past, 20 percent was considered the standard down payment. You may wonder if this still holds true?
In today’s innovative lending market, there really is no standard down payment. Lenders offer a wide variety of mortgage products, some of which require a 20 percent down payment. Others range from just a 3 percent down payment to a 10 percent down payment. There are even loans available that do not require a down payment at all.
With all of the lending options now available, you should be able to find the down payment that best meets your needs. If you have savings and can afford to put 20 percent down, you will avoid paying private mortgage insurance (PMI), which most lenders require if your down payment is less than 20 percent. However, if you need to purchase a home before you can save 20 percent or you would like to spend that money on expenses for your new home, you may decide that a lower down payment makes sense for you.
Remember, however, that the less you put down, the riskier your loan is. In addition to paying PMI, you will likely be charged a higher interest rate. Do the math and compare your options to make sure your decision makes sense for your situation.