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A Smaller Down Payment Can Make Homeownership More Accessible in Today’s Market. Here’s What You Need to Know About the Tradeoffs – NextAdvisor

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Saving up for a down payment can be one of the biggest hurdles prospective homebuyers face, especially if they’re aiming to put down 20%. 

As home prices have steadily increased over the past few years — and they show no signs of coming down — saving for a 20% down payment has become even more challenging. As of March 2022, the median U.S. home listing price was $405,000, according to Realtor.com. If you wanted to put down 20%, you’d need a down payment of $81,000, not to mention thousands of dollars more to cover closing costs. 

Fortunately, you can buy a home with a lower down payment. In fact, some lenders will approve you for a conventional mortgage with only 3% down, and other types of mortgages can be had for no down payment at all. There are tradeoffs, including having to pay mortgage insurance, facing potentially higher interest rates and the prospect of loan costing more money over time. Depending on your situation, that might be worth the opportunity to get into the housing market sooner, experts say. 

What Is the Recommended Amount for a Down Payment to Buy a House?

Traditionally, experts have recommended putting down 20% for your down payment to reduce your loan amount, score a lower interest rate, and eliminate the cost of private mortgage insurance (PMI) that comes into play when you put down a smaller percentage. 

But affording 20% upfront can be cost-prohibitive for many homebuyers, and it’s not a requirement to qualify for a mortgage. In fact, the median down payment for homebuyers is 13%, according to the 2022 Home Buyers and Sellers Generational Trends Report from the National Association of Realtors (NAR). 

What’s more, there are both pros and cons to putting down a 20% down payment, which is why experts recommend opting for an amount that works for you. 

“There is no one size fits all answer,” says Nadia Evangelou, senior economist and director of forecasting at NAR. “The right down payment amount depends on someone’s financial situation.”

Here are some examples of what a 10% or 20% down payment would like on a few different home loan amounts. 

Down Payment Cost Examples:

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Source: https://time.com/nextadvisor/mortgages/how-much-down-payment/

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Home Value 20% Down Payment 10% Down Payment
$200,000 $40,000 $20,000
$300,000 $60,000 $30,000