Anyone who is planning on purchasing their first home often takes the time to save for a down payment to ensure that they can obtain a mortgage loan from banks or financial institutions. Many people make the mistake of only putting a minimal amount of money down on a property just to purchase it quicker. Although it can take patience and time, there are several benefits to making a larger down payment upfront.
Lower Interest Rate Lenders are more likely to offer lower interest rates to home buyers who have a larger down payment when you have a lower loan-to-value ratio, which lower's the risk for the lender. This can allow you to save thousands of dollars over the term of your home loan just by waiting longer to save. Your interest rate will ultimately increase with the number of risks that the loan contains for the lender. Not only will you obtain a lower interest rate, but having a larger down payment means that you're closer to paying off the property in full. The sooner you pay off the mortgage, the less interest you'll pay and the more flexibility you'll have with your retirement.
Quicker Approval Those who have a larger down payment are more likely to be approved quicker than the average person when applying for a loan. Having a larger down payment of at least 20 percent is a sign of borrower strength to lenders and makes it easier for them to trust that you'll make your mortgage payments on time. This can make it easier to begin shopping around for your new home without waiting several weeks or months to hear back from the lender. Although most borrowers have at least one or two risks when applying for a loan, a down payment of at least 20 percent eliminates any risks that may be present.
Avoid Mortgage Insurance Lenders often require private mortgage insurance from borrowers who have smaller down payments that are less than 20 percent of the loan. Private mortgage insurance is used to protect the lender if the borrower is unable to make their payments on time during the duration of the loan. You can save even more money by avoiding the mortgage insurance completely with a larger down payment for one less expense.
Protect Yourself from Negative Equity Many people are unaware that they can develop negative equity quickly when the value of their home decreases due to the state of the economy. This can make it easy to owe more on the property than it's actually worth, which can lead to foreclosure on the home. By putting down a larger payment, you can minimize the risk of having negative equity if the value drops in future years.
Improve Your Odds in Winning a Multiple-Offer Situation It can be easy to fall in love with a property that other buyers quickly take notice of and also make an offer on. This can easily put you in the middle of a multiple-offer situation as you begin to try to outbid other people for the home, which can reduce your risk of obtaining the property. The seller is much more likely to favor the buyer who has the larger down payment and is already approved by a lender for a home loan due to less risk of the transaction falling through. You'll have more power when it comes to finding the home of your dreams and beating out other buyers to ensure that you get the home of your dreams.
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The trademarks MLS®, Multiple Listing Service® and the associated logos are owned by The Canadian Real Estate Association (CREA) and identify the quality of services provided by real estate professionals who are members of CREA. Used under license. London St. Thomas Assoc. of REALTORS® Last Updated: 9/23/2018 3:21:23 PM