Why Your Down Payment is So Important

A down payment is the cash amount that is put towards the selling price of the home. Higher amounts are attractive to sellers and may provide the purchasers with more negotiating power. Higher down payments increase seller confidence and they are more comfortable in the belief that the sale will go through without any significant problems.

How down payment is determined

Each loan programs have their own down payment requirements and these are generally determined by your financial history and your current situation. Income and credit history are taken into consideration and this information is used to arrive at the risk you represent as a borrower and the confidence that the lender will have in your ability to pay. If you are less likely to default on a loan, your down payment requirement could be considerably lower than if you are a high risk. While some programs offer down payment requirements as low as 3%, some are as high as 20%. Some veterans may qualify for zero percent down programs. You also have the option of raising the percentage of the loan if you can afford to pay a higher amount.

Advantages of higher down payment amounts

First-time homebuyers tend to go with lower down payments for a variety of reasons, but anyone who can afford to put down at least 20% down payments will enjoy certain benefits. Seller confidence is increased as well as the confidence of the lending company that you are working with. Higher down payments can result in lower interest rates that could save you thousands of dollars over the life of the loan. A higher down can also lead to lower monthly mortgage payments or a shorter contract. It provides a good start for building equity in this valuable asset that you are acquiring.

A few more tips

The more that you can afford to put down on your new home purchase the better. You’ll find that a higher payment will give you an edge over some other bidders showing interest in the property. The best way to determine how much you can afford to spend is to assess your current income, projected expenses and budgeting information and allow for a six-month window of unemployment in savings and total financial income resources. This can help you to avoid financial crisis and give you an idea of the maximum down payment that you can afford to make and still remain financially healthy.  In some cases, it may be best to continue saving for a while and wait until you are in the best possible position to purchase a new home. Some things to consider are your current credit rating, savings, and disposable income.