Deciding to buy a home is one of the best lifetime investments anyone can think of, and in recent times, everyone has realized that real estate investment is the next big thing, and nobody wants the juicy opportunity to slip past them.
As a first-time buyer, so many things will be running through your mind, like ensuring you meet up with the lending requirements, how much house you can afford, and getting your credit.
This article will address the one nagging question that every house buyer gets to ask, especially if you are a first-timer. While most people believe 20% is the standard down payment amount for buying a home, that 20% might seem too hefty for you, especially if you are buying your first home.
Most people may get discouraged because when you decide to start saving up such an amount, it might take just too long. By the time your 20% is ready, you never know; the house you have been planning to buy might have increased because real estate keeps appreciating and never depreciates. You will undoubtedly feel like you are backward when everyone moves forward, but you don’t have to give up because there are still other lesser down payment options.
Why Is a Down Payment Important?
Most times, people interested in buying a new home may not have the complete money to buy outright; hence, the down payment is the initial deposit you make on a home you like. Most mortgage agents or lenders will always want you to start with a down payment to show how committed or serious you are. In most cases, this down payment is Called home equity. It is security proof that you want to purchase the home and are financially capable of purchasing the house. A down payment also means you will not default in your payment, and you can make the rest of the payment without stress. When you succeed in making a down payment, you will be pushed to make your monthly payment, especially if you have the mindset that you are investing.
How Much Should You Put Down on Your First Home?
As a buyer, you must have heard about the 20% down payment thing, but fortunately, other options are available for you, and you could make down payments as low as 3% or 5%, which may be better for you because it is lower. With this juicy offer, do you still need to put down a 20% first payment? You should answer that yourself by now. It all depends on your financial capability. So with other options available, you shouldn’t fret about the thought of buying your first home. However, if you can make a 20% down payment, it might have some benefit.
Why You Should Pay a 20% Down Payment if You Can?
If you can make a huge down payment, it will be beneficial to you because you can afford to buy more houses and still pay the same monthly payment.
When you think of buying a home, your home might be your biggest investment and could serve as a shelter as well. But if you are buying a home with the mindset of making it an investment, that will guide you into making the right decision. As much as making a substantial down payment makes you pay off on time, it still is a significant risk to take. You might succeed in emptying your bank accounts because you want to make a huge down payment, and paying off the monthly mortgage might become quite a challenge.
Making a 20% down payment will reduce your interest rate, but for the average man, it might be too high. With the world economy dwindling and even worse after the coronavirus pandemic, people complain a bit too much about raising the down payment for a home. However, as an average man, if you don’t want to go as low as 3 to 5%, you can start with a 12% down payment which is still fair enough.
What Is the Best Option for You as a Buyer?
Deciding to buy a home is not as easy as you think, but when that is done, making a down payment will be your following line of action. As a new buyer, if deciding how much to pay seems complicated, then you can always consult an expert as your last resort. There are experts like a mortgage lender or your real estate agent; they can help you determine the amount you can afford as a down payment or the best loan program you can use.
If you also have other debts you are paying, it will be best to opt for the smaller down payment option, so you don’t have to spend every dollar you have. When you think of buying a home, you are doing it for yourself and your family, so don’t think of following the 20% down payment trend. Take a closer look at your income, try to know what you can afford, and always liase with your lender when determining the percentage to put in as a down payment. Also, bear In mind that when there is a change in the market, it could affect your buying power either positively or negatively.
To Wrap It Up
Whether you are a first-time buyer or you have bought a home before, the thought of buying a home can be intimidating. What makes it more discouraging most times is the down payment, and for an average citizen who isn’t earning much, this can be very discouraging. How to start saving up the down payment is even more daunting, with lots of bills to pay, pay off debt, and little income. But in recent times, things have become easier than you think; you can make a down payment of 12%, 5%, or even 3%. It all depends on your income and how financially capable you are.
While thinking about how expensive buying a house is and whether or not to buy one, you should remember that buying a home automatically makes you a landlord, and the thought of paying a landlord will not be your concern anymore.
Investing in a home is a lifetime opportunity that you will forever be grateful for.