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Calculate a small vs. a large home down payment.

Before planning to buy a home, it’s a good idea to start saving up for your down payment. The more money you put down, the less money you will need to borrow from a lender. There are, however, considerations to think about when determining how much money you want to invest upfront for your new home.

How long will I live in my home?

If you plan on staying in your home for a long time, it’s a good idea to put down a larger down payment so you pay less interest over the life of the loan. If you plan on selling the home in the short term or want to refinance or pay off the loan early, then a large down payment may not be necessary. Just note that if you put down less than a 20% down payment, then you will have to pay Private Mortgage Insurance (PMI) until you reach 20% equity.

How much of my savings should I spend on a home down payment?

How much money you have saved is an important factor of how much you should spend on a down payment. It may be better to put less down than spending your entire savings. It’s wise to ensure you have enough saved to pay for unexpected expenses that come with home ownership or unexpected emergencies.

Do I qualify for a VA, FHA or USDA loan?

There are government-backed loan options such as a VA loan, FHA loan or USDA loan that allow for a lower down payment, or in some cases no down payment with some fees, to help make home ownership more affordable for military families, first-time home buyers or those in suburban or rural locations. These programs may make it easier for you and your family to buy a new home.

Market conditions.

Pay close attention to housing trends, in declining markets it may make more sense to put less down. You may also want to check prices and interest rates and if they have increased or decreased within the past few months. If you think prices or rates are going to drop then it may make sense to wait on the home purchase. If not, then you should act quickly if you think homes are selling faster or if rates are on the upswing.

How much does PMI cost?

Figure out how much PMI you would need to pay if you cannot make a 20% down payment. For example, if you put down 10% on a $300,000 home and make monthly payments of mortgage insurance, the cost of mortgage insurance may be less than the additional funds required to make a 20% down payment depending on how long you will reside at the property. In addition, your home could increase in value during that time and you could refinance to remove PMI before you pay it off.

Consider these points and use our Down Payment Calculator to help you estimate the differences in down payments. Contact Freedom Mortgage today and our experienced loan advisors can help you make an informed decision.

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