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Buying a Home: How Big Should Your Down Payment Be?

Buying a Home: How Big Should Your Down Payment Be?

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Most people who are buying a new home need to put down some money upfront. Not only does a sizable deposit lower the amount of debt you require, but it also shows your mortgage lender that you are serious about the purchase. So, how big should your down payment be? In many cases, 20% of the purchase price is ideal, but it all depends on your individual situation.

Buying a Home: How Big Should Your Down Payment Be?

Many financial experts state that a 20% down payment is ideal. For example, this means that you’d put down $100,000 if your home’s total cost is $500,000. However, there are additional costs associated with buying a home, so you might need savings of at least $120,000 to $150,000 to purchase this home. The reason why 20% is considered the gold standard is that it allows you to offset any potential losses. If the value of properties in your area drops by 10%, your lender still won’t have any uncompensated losses, even if they have to foreclose. Additionally, a 20% down payment allows you to avoid certain costs, for example, mortgage insurance, and you’re likely to get better offers from lenders.

Factors to Consider

Of course, there’s no one-size-fits-all solution when it comes to down payments, and it’s important to consider a wide variety of personal factors. For example, not everyone will be able to get the same mortgage rate. In California, the average rate for fixed-rate mortgages is 5-7%, and people often pay over 7% for adjustable-rate mortgages. However, you might be able to borrow at a lower rate if you have an excellent credit score. In this case, borrowing more money won’t be very costly. On the other hand, you might have to pay more due to low or lacking credit. If your interest rate is high, saving up a larger deposit is better. You’ll also need to consider whether your expenses are likely to increase or decrease in the future. For example, if you’re having children soon, saving up a larger deposit might be beneficial because you don’t want to over-extend yourself financially right before a big change.

How a Mortgage Lender Can Help

In many areas of California, houses are extremely expensive. In fact, the average home now costs over $750,000. People who are struggling to save up a 20% deposit can reach out to an experienced mortgage lender in their area. The expert can help you evaluate whether you’re eligible for any financial support. They can also evaluate your situation and determine what kinds of mortgages you’re eligible for. Putting down 20% is ideal in many cases because it allows home buyers to avoid certain costs, and it lowers the total amount of debt they accrue. However, you might not be able to save that much initially. There are mortgages available for people who are putting down 10% or even just 5% of the purchase price. The best way to find out what kind of mortgage you’re eligible for is to speak to a lender in your area.

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