Why Putting 20% Down on a Denver Home May Be A Good Idea

You may be wondering how much you need to save for a down payment if you’re considering buying a Denver home. Do you have to put down 20% of the purchase price, or can you put down less? The federal government offers programs that allow qualified buyers to put down as little as 3.5%, yet buyers must understand the many benefits of a 20% down payment.

The following are four reasons why 20% down may be a good option if your budget allows it.

  1. Your Interest Rate May Be Lower

Your lender knows you are a less risky borrower when you put down 20% compared to a 3-5% down payment. Mortgage lenders will likely be more willing to give you a lower interest rate if they are confident in your credit score and ability to repay a loan.

  1. You’ll End Up Paying Less for Your Home

Down payments reduce loan amounts. The larger your down payment, the smaller the mortgage. If you can pay 20% of the cost of your new home up front, you’ll only have to pay interest on the remaining 80%. In the case of a 5% down payment, the additional 15% will be added to your loan and accrue interest over time. Ultimately, you will pay more over the course of your home loan.

  1. Your Offer Will Stand Out in a Competitive Market

In a market where many buyers are competing for the same house, sellers like offers with a down payment of 20% or more. The seller is as confident as the lender in this situation. This makes you more likely to get approved for financing as a stronger buyer. This increases the likelihood of the deal going through.

  1. You Won’t Have To Pay Private Mortgage Insurance (PMI)

What is PMI? Here’s what Freddie Mac says:

“For homeowners who put less than 20% down, Private Mortgage Insurance or PMI is an added insurance policy for homeowners that protects the lender if you are unable to pay your mortgage.

It is not the same thing as homeowner’s insurance. It’s a monthly fee, rolled into your mortgage payment, that’s required if you make a down payment less than 20%. . . . Once you’ve built equity of 20% in your home, you can cancel your PMI and remove that expense from your monthly payment.”

As mentioned earlier, lenders are more likely to see your loan as risky if you put down less than 20% when buying a house. In the event you are unable to repay your loan, PMI allows them to recover their investment in you. If you have 20% down or more, this insurance is unnecessary.

Many home sellers who want to buy a larger home can take the equity they earn from the sale of their home and put 20% down on the new home they wish to purchase. Currently, homeowners can put their equity toward a larger down payment on their next home because they have equity.

Bottom Line

Are you thinking about buying a Denver home? Think about 20% down payment benefits over a smaller one. Get in touch with us at The Denver Real Estate Agent to help make your homeownership goals a reality.

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