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How Your Down Payment Can Affect Your Mortgage Payment

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If you’re in the market for buying a house in AZ, it’s important to know whatever down payment percentage you pay can greatly affect your monthly mortgage. For those who are new to real estate, a down payment is a percentage amount (usually between 3 and 20 percent) that you give to the home’s seller to guarantee the seller some form of initial payment. This can be extremely helpful to first time home buyers. You’ll find that most mortgage lenders require a down payment of at least 3 percent and FHA loans require at least 3.5 percent. This percentage varies based on your credit history, your reason for buying, or the type of house you’re purchasing. So how does a down payment change things like your monthly mortgage or mortgage insurance? Here is a breakdown of how higher down payments pay off in the end.

How Much Should Your Down Payment Be?

Many homebuyers find difficulty in finding money for a higher down payment because it’s coming from their savings or how much they made selling their previous house. However, saving up for a larger down payment can be incredibly helpful for lowering your monthly mortgage costs, as well as insurance and even interest rates. Depending on your current income or ability to put cash aside before you purchase a home, you could potentially save yourself from higher monthly payments.

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For example, if you pay at least 20 percent for you down payment, you can avoid paying mortgage insurance. This insurance is something that mortgage lenders use to avoid risk in losing money for providing you a mortgage loan. It’s included in your monthly mortgage payment for a fixed amount of years. Paying 20 percent could save you from having to pay this extra fee while also lowering your interest rate on the rest of the mortgage loan. For many people, this results in saving hundreds of dollars each month on their mortgage payment.

However, most new homebuyers choose a lower down payment percentage because they are not financially prepared enough to provide more than 3 to 5 percent of the home purchase cost. This is no issue for applying for a mortgage loan as long as you have decent credit and a few months of future mortgage payments saved up beforehand. This option is convenient for those who have savings set aside but are not looking to drain their bank accounts all at once. Unfortunately, any down payment under 20 percent will automatically require you to make PMI or FHA insurance payments for an extended period of time.

Investing In Your New Home

If you’re interested in avoiding mortgage insurance and having a lower monthly rent, a higher down payment may be the answer you’re searching for. Even if you are unable to put money down for a 20% down payment, saving up for even a 10% down payment could lower the interest rate on your mortgage loan. Ultimately, the amount that you’re willing to give directly to the seller determines many other factors that could cost you in the future. It’s no secret that buying houses can be an expensive process, which is why working with a local AZ realtor can help you find unexpected ways to save cash. CENTURY 21 Northwest work together with reliable mortgage lenders to help give you inside financial advice.

Make purchasing a home an easier task by contacting a CENTURY 21 Northwest realtor at 623.299.2148.

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