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When buying a house in the United States, a down payment can help you lower your mortgage interest rate! By paying a higher down payment, you can show the bank your repayment ability and credit, thereby obtaining a lower mortgage interest rate. This means that you will save a lot of interest in the repayment process over the next few decades! Many people may think that 20% of the loan is required to get a mortgage, but a high down payment also has its corresponding benefits. Today, let’s talk about 4 unexpected benefits of paying a 20% down payment!
The Loan Interest Rate May Be Lower
Compared to a 3-5% down payment, a 20% down payment shows that you are more financially stable and not a big credit risk. The more confident your lender is in your credit score and ability to repay the loan, the lower the mortgage rate they may be willing to give you, which of course saves you more money.
Lower Total Home Price Paid
The higher the down payment, the smaller the loan amount for a mortgage. If you can pay 20% of the cost of a new home at the beginning of the transaction, you will only have to pay the remaining 80% in interest. If you only pay a 5% down payment, the additional 15% will be added to your loan, and interest will accrue on this amount over time. In the end, the overall amount of the mortgage loan you purchase will also cost more.
Your Bid Will Stand Out in a Competitive Market
In the home selling market, when many buyers are competing for the same property, landlords often want to see buyers make a down payment of 20% or more. In this case, landlords and lenders will gain confidence. You will be considered a stronger buyer, and the loan approval rate will be higher. Therefore, the offer is more likely to be accepted by the seller and the house you want will be chosen.
No Need to Pay Private Mortgage Insurance (Pmi)
What is PMI?
According to Freddie Mac: "PMI is an insurance policy that protects the lender in the event that you can’t make your mortgage payments. It’s a monthly fee that’s added to your mortgage payments and is required for all conventional loans with a down payment of less than 20 percent. It’s a relatively small fee!"
Once the home equity reaches 20%, you can cancel PMI and deduct it from the mortgage you pay. PMI will help them recoup their investment in you in the event that you can't repay the loan. If you can pay a down payment of 20% or more, you don't need this insurance and the corresponding trouble. Many times, existing landlords want to move to a larger or more expensive home, so they can use the proceeds from the sale of their existing home to pay a 20% down payment on their next house. Given the appreciation of the landlord's home, this creates a great opportunity to use these savings for a new home with a 20% down payment or more. Therefore, considering a 20% down payment, or even a smaller down payment, requires careful consideration.
