If you are ready to buy your first home, then there is no doubt that you have put forethought into this purchase. The entire home buying process can seem overwhelming. The first step in the homebuying process is to have a down payment. Without a down payment, you will not be able to get a loan. There was a time when you had to have 20% to 30% down in order to buy a home, but now things are different. Some lenders will allow you to purchase a home with only 3% to 5% down. However, it is wise to put 20% down when you are purchasing a home and we will explain why below.

Avoid Private Mortgage Insurance

PMI stands for Private Mortgage Insurance. This is an insurance policy that the lender will put on your mortgage if you are not able to come up with 20% down. This is a fee that lenders tack onto your monthly payments because they want to have some kind of insurance if you default on your loan. PMI is basically there to take over your loan if you default. This means that your lender considers you to be an at-risk borrower because you do not have sufficient funds to pay for your home. Once you have built-up 20% of equity into your home, the lender will remove your Private Mortgage Insurance. Private Mortgage Insurance is just another fee that you could avoid by paying down 20% of your mortgage in the first place. The goal of purchasing a home is to be able to have a home that is completely yours one day. Extra payments just push you further away from that goal.

Instill Confidence in the Lender

When you save up your money and wait until you have 20%. Not only will you have the assurance that you can afford your home, but you will also give that same relief to the lender. When the lender realizes that you have the funds available to pay for 20% of the loan, it is likely that you will get approved for the mortgage. The annual percentage rate, or APR, is the amount of interest that you pay on your mortgage. The lender will consider your credit and your down payment in the amount of APR that you will receive. So, if you are able to come up with 20%, it is highly likely that you will also be able to have a lower APR.

The Benefit to Purchasing Your Home with 20% Down

20% down for a home can seem like a ton of money, but in reality, it does not have to be. If you find a home that is within your budget, you can save up over a few years and get the money that you need to pay the 20% down. It will take patience, diligence, and endurance, but once you have 20% down saved for your home, not only will you be more likely to get the home that you want, but you will have built up the stamina you need to be a responsible homeowner who will efficiently and quickly pay off a mortgage.