While housing market conditions vary across the country, one thing is true of today’s market. This seller’s market combined with rapidly rising home values can make it challenging to buy a new house. You may be thinking about jumping in the water with a low down payment on your new mortgage. Qualified applicants could put no money down with a VA loan and only 3.5 percent down with an FHA loan. While these could be options available to you, should you make a lower down payment when buying a home today?

The reality is that a small down payment could seemingly keep more of your hard-earned money in your bank account today. However, it could wind up costing you more money down the road. Here are three ways that a lower down payment could increase your regular mortgage payment.

A Higher Interest Rate
Generally, mortgage interest rates are on a tiered system. The loan amount, the applicant’s credit score and the loan-to-value ratio can affect the interest rate that you pay. By simply making a larger down payment today, you could lock in a lower interest rate. This equates to tremendous savings through lower interest charges over the life of the loan and a lower monthly payment.

A Larger Loan Amount
Your monthly loan payment is comprised of principal and interest components. When you make a smaller down payment upfront, your loan amount will be higher. This means that you will pay back more in principal each month. Keep in mind that this is combined with higher interest charges as well to potentially give you a much higher loan payment.

A Mortgage Insurance Premium Payment
Mortgage insurance premium is an additional expense that is applied to your account if you put down less than 20 percent of the sales price upfront. Depending on the scenario, this premium could equate to a higher monthly payment until you sell the house or until you refinance the loan down the road.

While making a low down payment can yield a higher monthly payment, more interest charges and an extra monthly fee, it still may be a suitable option for you. At MortgageDepot, we want to help you feel confident about the home loan that you set up. Contact our team today to explore the loan options that you qualify for.

Connect with one of our loan consultants to learn more.

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