A down payment is customary to home loans, but many don’t fully realize how important a deposit is. As a first-time mortgage borrower, putting down the lowest amount you’re willing to pay out of your pocket upfront may not help your cause in the long run. It may be a burden to save a certain amount of money for a while, but the convenience of not doing is may just be superficial.
There’s a good chance you can find a home loan in Utah, such as americanloans.com, South Carolina, or other states in America with 100% financing; however, opting to pay little or no down payment at all may be in your best interest.
Two Words: Mortgage Insurance
If you’re unable to put down at least 20% of the sale price, chances are, the lender would require you to pay for some kind of mortgage insurance. This coverage isn’t designed to protect you, but rather to help your lender recover his or her loss in case you default.
Usually, you have to keep paying the premium until you have built enough equity on your property. Every lender has a particular loan-to-value ratio requirement, it varies how long you have to pay the insurance; but the point is, you’d still need to pay extra for something you might not have any use just to get approved.
More Interest to Pay
The large your down payment, the smaller the amount you have to loan for the property. And the lower your borrowed sum, the more you can save on interest over the lifetime of your mortgage. You might still save in interest if you could pay off your loan early, but not all lenders would allow you to pre-pay without penalties.
Higher Risk of Being Underwater
A down payment likewise serves as a security to help you avoid falling deep underwater in your mortgage. An underwater home loan happens when what you owe is more than what you own in your property. If you fall behind on your repayments and house prices suddenly tank, you could easily be in this dire position.
Getting a home loan requires financial prudence and discipline. It’s certainly hard to save for an adequate down payment, but that’s only a small price you have to pay to avoid major fiscal troubles in the future.