6 Reasons to Make a Bigger Down Payment on Your Home
Deciding how much of a down payment to make when buying a home can be a challenge — and it can make a big difference in how much your ultimately home costs. The amount of money you pay up front determines how much your mortgage payment is. If you can afford to make a down payment that is larger than average on a home, should you do it? Check out the reasons you may want to make a substantial down payment.
1. Easier Approval
Affording a large down payment is a sign of borrower strength and shows lenders that you know how to save. Since this is one of the best indicators of creditworthiness, you are more likely to get approved for a mortgage with a larger down payment. Further, if you are in a multiple-offer situation, offering the seller more money up front can be the key to outbidding other prospective buyers.
2. A Lower Interest Rate
Banks and lenders usually offer better interest rates when your loan-to-value ratio is lower. An increase in your down payment lowers this ratio and also lowers the lender’s risk. Lower interest rates can save you significant amounts of money over the life of a mortgage. (You can get an idea of how rates affect what you pay over time with this lifetime cost of credit tool.)
The other major factor in lowering your interest rate is your credit score, so make sure you know where you stand before you apply for a loan. You can see two of your credit scores free every month on Credit.com.
3. Lower Monthly Payments
A bigger down payment means a smaller mortgage amount, which means lower monthly payments. This means more money in your monthly budget for the other facets of your life and again, fewer dollars of interest paid over time.