When you purchase a home there are many challenges that come into play. Trulia.com recently did a survey called the “American Dream Survey”. Home buyers who took the survey stated that the number one obstacle of owning a home was saving enough for a reasonable down payment. The down payment is the amount of money a prospective home buyer will bring to the transaction. The remainder will be brought by the mortgage lender. But exactly how much do you need to, or should you, put down up front?
The best way is to have at least 20 percent down or more. It’s the gold standard that so many prospective home buyers forgot about when the banks made mortgage money more available than the air we breathe. People were able to achieve their dream and needed zero percent down to do it. What looked like the American dream became the American nightmare and all in the name of Wall Street greed.
The following are some good reasons for Berks County PA home buyers to strive for that magic figure of the 20% down payment.
A. Improved Chance of Actually Getting The Mortgage Money Needed
The biggest reason to have 20 percent down is that in today’s mortgage marketplace, many banks and mortgage lenders are less likely to give mortgages unless buyers come up with at least that much money prior to purchasing a house. The lenders that do provide home financing for loans at less than 20% down will run you through the mill collecting paperwork, asking questions and, in some cases, taking blood before issuing a mortgage approval. In a nutshell, it is easier to get the loan approved.
New “Mortgage Qualification” rules were recently issued by the Consumer Financial Protection Bureau. It is now mandatory that home buyers will have to meet a 43% debt-to-income ratio to qualify for a home mortgage. That means once you add up the mortgage payments (principal & interest), property taxes, homeowner association fees, if any, and other debt, like credit card balances, car or student loans, your total debt has to be less than 43 percent of the gross income you earn per month. Putting 20% down reduces the size of your monthly mortgage payment, making you more likely to qualify for the home you desire.
C. Smaller Monthly Home Mortgage Payment.
This one is obvious. Less mortgage equals less payment. It seems silly to add this one but here it is anyway. More money down means you borrow less, which means you will have a smaller mortgage, which means you will always have a smaller mortgage…Unless you refinance or apply for a home equity line of credit.
D. A Lower Interest Rate, Less Cost (Interest Paid) Over the Life of the Loan.
The interest charged on a loan with 20 percent down is often lower than the interest on a loan with less money down. There are certain conditions that may apply here but this is the general rule. Your lower interest rate can save you thousands of dollars, if not tens of thousands of dollars, over the term of the loan.
Putting 20 percent down allows you to avoid private mortgage insurance. PMI is an insurance that lenders require from most home buyers who obtain loans in which the down payment is less than 20 percent of the sales price or appraised value. Many lenders will even add a percentage that is much like an insurance policy onto the mortgage interest rate. It simply insures that the lender is only exposed to 80% of the property’s value in case of a default by home owner.
F. Great Equity Builder.
A significant down payment builds instant equity in the home. A 20 percent down payment immediately puts equity into a property when you purchase it. That down payment safeguards you if the market turns downward temporarily.
G. Berks County PA Home Sellers Love It.
Sometimes getting the right home has to do with terms and conditions. If you are making an offer on a home that has other suitors it could come down to the size of the mortgage, if any, settlement date or home inspections. If you have more cash and are therefore a smaller mortgage, the home seller will consider that a positive. It could be what tips the scale in your favor. Quite simply put, you have a better chance of the seller accepting your deal if you are a strong buyer. Less financing means stronger buyer.
Not having 20% down on a home purchase does not mean you cannot buy a home in Berks County PA or anywhere for that matter. It only stands to reason that having more money down and financing less is a better way of buying a house.
There are still plenty of ways to get people into homes without having the coveted 20% down. Many Berks County PA and Reading, PA home lending institutions along with select credit unions have an array of products to offer prospective buyers.
At Weichert Realtors Neighborhood One, we have teamed up with many of these lenders, both inside Berks County PA and beyond, in order to offer the personal assistance people need to purchase their next home. With interest rates still at all-time lows purchasing a home with less than 20% down is still a good option for many.
Whether you are buying a home in Berks County PA or Reading, PA with cash or need a home loan for 100% of the value, our boutique style real estate office will provide you with the personal service you need and deserve when buying or selling a home.