How Much Down Payment Should I Have?

 For many people, owning a home is something that they hope to achieve one day. Being a homeowner gives one a sense of accomplishment, and it offers more freedom than renting. But there are certain expenses that can stand in the way of owning one's home. One of the biggest is the down payment.

In years past, lenders almost always required a down payment of at least 20% of the purchase price of a home. This requirement was a major obstacle for many would-be homeowners. For a home that sold for $200,000, they would have to come up with $40,000 up front. It would be nice if we all had that much money sitting around, but few people do.

Today there are programs that allow home buyers to make smaller down payments. Some mortgage programs for first-time home buyers make it possible to buy a home with nothing down. Others require a down payment of as little as 3%. This has opened the door for those who otherwise could not have afforded to buy a home to do so.

 Still, there are advantages to making a larger down payment on your home. Here are a few to consider:

* A larger down payment will give you equity in your home from the start. If you pay little or no money down, it can take years to build up any equity.

* The higher your down payment, the lower your monthly payment will be. Not only will the amount of principal be smaller from the start, but you'll also be able to avoid paying private mortgage insurance (PMI) each month if you pay at least 20% down.

* A large down payment may qualify you for a lower interest rate. The higher amount of your mortgage loan, the larger the risk the lender is taking. Making a sizable down payment is a sign of financial stability and it lowers the amount of money you'll need to borrow, so a lender has incentive to offer a more competitive interest rate.

There's no universal down payment amount that is best for everyone. Some home buyers don't have a lot of money saved up, but they can afford to make their payments each month. In such cases, it's best to take a careful look at your finances and determine how much you can afford to pay down. Even if you qualify for a mortgage with no money down, paying as much as you can up front will work to your advantage.

Not everyone can afford to make a 20% down payment. And with the programs are available today, you don't necessarily have to. But it's not necessarily a good idea to get a mortgage without making a down payment at all. It may save you money in the short term, but it will most assuredly cost you more in the long run.