A new home is a big investment and one of your most prized possessions. It’s no secret that buying a new home can take a hit to your bank account, but putting at least 10% down can relieve a lot of financial stress down the road.
Although 20% is the ideal down payment amount for many lenders, 10% gives you a good starting point and it increases the likelihood of securing your home loan.
Before you move forward with your new offer, these are 4 reasons why you should put at least 10% down toward your new home:
1. Many Lenders Require a Down Payment
When you’re in the process of buying a home, most lenders require a down payment of at least 3%. Loans that are insured by the Federal Housing Administration (FHA) require a down payment of at least 3.5%.
However, you’ll find the most lenders require a larger down payment, typically in the ranges of 10%-20% depending on your credit history and other factors.
2. 10% down makes it easier to get a home loan
Walking into a mortgage lender’s office without a dollar to your name will make it very difficult—if not impossible—to secure a home loan. Putting down a payment of at least 10% of the cost of your home will show the bank that you’re a serious buyer who is ready to put his own money toward the cost of the home.
3. Borrow less money from the bank
If you put at least 10% down on your next home, this will reduce the amount of money that you need to borrow from the bank. If you can afford to put more than 10% down on your new home, it will reduce your overall borrowing amount even more.
4. Lower mortgage payments
One of the biggest burdens of buying a new home is a monthly mortgage payment. The standard income percentage of your mortgage payment is 30%, and paying more than this amount can leave you feeling as if you bit off more than you can chew.
A 10% down payment on your home will help lower your monthly mortgage payment to a reasonable rate that you can afford.
Whether you’re buying your first or fourth home, 10% is the minimum that you should put down on your purchase. Once you have cash in the bank and your ducks in a row, you’re one step closer to buying the home of your dreams.