If you are confused about how much money you need for a down payment on a house, you are in good company. Your parents may have told you that you need to make a 20 percent down payment. As many as 39 percent of non-homeowners in 2017 had this line of thinking, according to the National Association of Realtors. In addition, 26 percent of those surveyed believed that they needed to save up 15 to 20 percent for a down payment.

With high home prices that seem to increase by the month, saving so much money is hard for many people to do. The good news is that the minimum down payment requirement for some loan programs today is three percent. How can you decide how much money you should use as a down payment? There are pros and cons to larger and smaller down payments. By understanding what those are, you can make the right decision for your financial situation.

When you put 20 percent down or more on a home, you are keeping your loan amount smaller. Mortgage insurance is not required by the lender, and your monthly mortgage payment is more manageable. You may even qualify for a lower interest rate, and you can save a small fortune on interest charges over the life of the loan. You may have access to many loan programs with a sizable down payment available, and this may help you to save money on closing costs. In addition, a larger down payment can be a benefit in a bidding situation. After the purchase, your built-in equity may enable you to take out a home equity loan potentially years sooner than you otherwise would be able to.

Of course, accessing that money requires you to apply for a home equity loan. If making a sizable down payment makes you house poor, you may be more likely to need a home equity loan in the future. Plus, with interest rates so low right now, you likely will get a better return on your money through a variety of investment options. If you choose to make a smaller loan amount, you may be more likely to be upside-down on your home if the housing market declines. You will also have a higher mortgage payment and may have a tighter budget for years to come as a result.

The reality is that each potential buyer must understand the pros and cons of both options because there is no magic number that is right for everyone. When you understand the risks and benefits, you can make a decision that is right for you. To explore the loan programs available to you, contact our lending team at MortgageDepot today.

Contact one of our loan consultants to learn more.

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