Down Payments
Recently, the phenomenon of low down payment mortgages has arisen. In the past, the industry expectation was that borrowers would pay the first 20% of the loan as a down payment. The reason why this is so high is to decrease the likelihood of borrowers defaulting on their loans. When a borrower has more equity invested in their home, they are more likely to make payments. In addition, if you invest at least 20% in your down payment, private mortgage insurance (PMI) is not mandatory. This is insurance against defaulting on your loan. While 20% is still the standard, low down payments, and eventually zero down payment, have evolved. True, the number of defaults has increased since this new development, but the number of people able to purchase houses has increased, making more money flow to lenders. Federal Housing Authority mortgages were the first to lower down payments, but more and more frequently, this trend is spreading throughout the industry.
In today’s homebuyers’ market, 20% is not always realistic, so lenders have eased standards under the condition that a low interest borrower purchase private mortgage insurance. Federal law requires lenders to cancel PMI once equity reaches 22%.
How much cash should you put down depends on a couple factors. First and foremost is how much actual cash you have available. If you can realistically put 20% or more down without effecting your daily expenses, it may make sense to do so. You will owe less over the course of your loan since you will not be paying interest for as long. It also depends on how comfortable you are with leveraging your finances by investing in a house that you do not yet own. Another factor is what else you are planning on doing with the money. It may make more sense to invest that money in mutual funds or the stock market. Over a longer period of time, this strategy may actually help you pay your mortgage off faster. Basically, what it comes down to is what you, the borrower, feel most comfortable with. Go over your options in detail and plot out what works best for you. Talking with a real estate agent may be helpful as well.
For more infomation on Mortgages choose from the list below. |
|
|
|
|
|
|
|
|
|
|
|
|
Banking - Business Finances - Economics - Insurance - Investing
Major Purchases - Personal Finances - Stock Market - Taxes
|
