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Making Mortgage Down Payment: Is it Okay to Skip the 20% Mark?

dollar bills, calculator with down payment word on a house formComing up with a 20% home loan down payment is often the biggest challenge for many homebuyers. While it is the benchmark to qualify for better rates and deals, most mortgage applicants today pay less than the recommended amount. According to the National Association of Realtors, the typical down payment for many first-time homebuyers is 6% or less.

Buying with Less Money Down

Loan programs with low down payment are a great help if you want to buy a home, but do not have substantial savings. Before, government-backed loans (like FHA) are the only mortgages that allow a down payment of 5% or less, but this is now available for some conventional loans. Utah mortgage lenders such as Altius Mortgage Group note that there are now several mortgage options that require little to no money down.

Good Reasons to Hit the 20% Mark

While it can be a bit hard to hit the 20% down payment on the house, there are reasons it is best to aim for this amount. Apart from avoiding the extra cost of a private mortgage insurance or PMI (the insurance that protects the lender in case you default on the loan), you can also:
  • Build equity faster
  • Pay less over the life of the mortgage
  • Have smaller monthly payments
  • Get the best rate and terms
  • Pay off your loan easier and faster

Make Sure It’ll Not Ruin Your Purse

Hitting the 20% mark is advisable, but paying for your home should not drain your savings. You still need to have some money to cover other expenses such as homeowner’s insurance, closing costs, and others. You also need to take into account the moving expenses, cost of new appliances, and other basic home maintenance requirements. If 20% is not practical, it is fine to pay a lower amount. There are pros and cons to making a 20% down payment. It is best to weigh them down while considering your specific financial situation. You may want to consult a reliable lender to help learn more about different mortgage options with the down payment percentage you have in mind.
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