It is commonly recommended that buyers pay 20% of the purchase price as a down payment for their home. While this may be a hefty sum to many buyers, there are many good reasons why this amount makes sense.
- The higher your down payment, the lower your mortgage payments will be.
- The higher your down payment, the less you will pay on interest because you will have paid down more of the principal.
- Mortgages with a down payment of less than 20% require the buyer to pay private mortgage insurance, or PMI. Lenders require PMI in order to protect themselves if the borrower (you, the homebuyer) goes into default on the loan. The lower the down payment, the more you will pay in PMI.
- If you have a low credit rating, it is likely you will pay more in PMI.
When buying your first home, consider meeting with a financial planner to help set your goals and expectations. A mortgage broker can also assist you in obtaining the best possible mortgage for your needs and circumstances.