Down Payment Biggest Obstacle for Home Buyers
Are you planning to buy a home this year? You will have to face many challenges. Saving enough money for a down payment is one of them. According to a survey conducted by a reputed real estate website, the down payment is the biggest obstacle which homeowners have to face.
Do you know what a down payment is? It is the money which you have to give to your lender when you agree to purchase a home. The question is how much down payment do you need? With FHA loans, this can be as low as 3.5%, but if your credit score isn’t great, you will need at least 20%.
We talked to some of the best real estate experts and they advised us that 20% down payment is the best option. And why did they say this? Here is why.
Improves your chances
Getting a mortgage is not an easy task, especially if your credit score is on the lower side. How do you convince the lender you will pay back the loan? Give them a greater down payment and they will be happy to lend you a larger amount.
Provides you with a better interest rate
Give the lenders a big down payment, and in return, they can reduce the offered interest rate. The more you agree to pay initially the lower the loan amount will be and the better interest rate you can get.
And do you know another benefit of this? The loan will be more affordable for you, and you will be paying a reduced amount as interest over its life term.
Reduces your monthly payments
We are sure you know mortgage rules have changed. Do you know the limit on the debt to income ratio? It has to be 43%. What does this mean? The monthly payments which you pay to reduce your debts must account for less than 43% of your income. And this debt includes everything; your mortgage, auto loan, student loan and even the balance on your credit cards. What has 20% down payment got to do with this? A lot. Like we said, it reduces the amount which a bank has to loan you, and so your monthly payments will also be lower.
So how much money do you need to save for the down payment on your dream home?