A 20% Down Payment

You should make a 20% down payment when buying a home. Even though this is a significant amount of money, it will save you a ton of money in the long run. Making a small down payment will end up costing you thousands of dollars in interest over the life of the loan.

Currently, an FHA-insured mortgage has become quite popular. It has a down payment of only 3.5%. However, there are two extra fees charged with this loan. The first is a one-time upfront fee equal to 1.75% of the loan amount. On a $250,000 loan that is $4,375. Lenders will make it palatable by rolling it into the life of the loan. Ouch, that means more money in interest that you have to pay.

The second fee is an annual mortgage insurance premium (MIP). On loans with a 3.5% down payment, the MIP is typically 0.85% a year! It can go up to 1.05% in high cost regions. Unlike Private Mortgage Insurance (PMI), it does not go away after you have 80% equity in your home. If you don’t refinance, you are stuck with MIP until you pay off the loan. If you are able to refinance, just watch out that the interest rate are not higher.

While many lenders have conventional loans with lower down payments, you will be charged PMI. The rate of the PMI will depend on your credit score. Currently, a great FICO score of 760+ will be charged about 0.55%. If your score is 700-759, the PMI ranges between 0.75% – 1.15%. The advantage of this loan over an FHA loan is that PMI will go away once you have 80% equity in your home. Remember that you are the one that has to contact the financial institution to get the PMI removed. They won’t do it automatically.

So now you see why a 20% is the best way to go if you cannot pay cash for your home. Also, if you lower the price of your home, it’ll be easier to save the 20%, as it will be a lower amount. Plus, you won’t have PMI to contend with.

Remember to never ever touch your retirement savings for your down payment. You’ll be hurting yourself when it’s time to retire. Don’t use your emergency fund (EF) for a down payment. A down payment is not an emergency. Lenders also want to see that you have at least three to six months of mortgage payments saved. If you’re using your EF for a down payment, you might not get approved for the loan.

Share on facebook
Share on twitter
Share on linkedin

More Posts

Small Business

Move Your Small Business Forward with These Cashflow Basics

Image via Pexels Profit is crucial for any kind of business to maintain success. But it’s not everything. If your small business doesn’t maintain positive cashflow, it won’t be able to thrive — or even survive —  for the long-term. Put simply, cashflow is the money you have available for operating your company. It’s the

Paycheck Protection Program

The Paycheck Protection Program is back. Business can apply for loans to keep their workforce employed. Congress approved more than $280 billion in relief funds for this purpose. Remember that not all lenders will be able to process and issue funds. Smaller community based lenders who work with low income communities and minority owned businesses

Prayer for joy

A Prayer for Joy

Jesus, thank You for becoming Immanuel, “God with us.” It’s because of You that I can

Categories

Send Us A Message