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In previous articles, we’ve explained how home buyers in Washington can get by with a smaller down payment. There are many ways to accomplish this, including the FHA program and other mortgage options that allow for a smaller investment.
Today, we will look at this subject from the other side. We’ll explain five benefits of making a larger down payment, when buying a home in Washington.
Sure, a larger down payment means that you’ll have to save more, and perhaps wait a while longer to buy a home. But this strategy can pay dividends for many years to come, in the form of a smaller monthly mortgage payment.
When you put more money down on a home purchase in Washington, it means you’re borrowing less from the lender. And with all other things being equal, a smaller home loan results in smaller monthly mortgage payments. This can free up cash on an ongoing basis that you can use for other purposes, such as investments, savings, vacations, home improvement projects, etc.
In many ways, mortgage lending revolves around risk. Borrowers who are considered to be a bigger risk have a harder time qualifying, and they often receive higher interest rates as well. This is true for all types of consumer loans, including mortgages.
On the other hand, a borrower who is perceived to be a lower risk will have an easier time qualifying for mortgage loan (and probably get a better rate as well). This is another benefit to making a larger down payment when buying a house in Washington.
The more money you put down, the more you reduce the risk for the bank or lender that is making the loan. This can make it easier to qualify for financing. It might also give you more options to choose from, when it comes to the type of loan you want to use.
Putting more money down on a home purchase could also help you qualify for a lower mortgage rate. And this can have far-reaching and beneficial effects for you, as the borrower.
The interest rate is one of the four main components that make up a typical mortgage payment. So by securing a lower rate, you’re also lowering your monthly mortgage payments.
More importantly, you are greatly reducing the total amount of interest you will pay over the life of the loan. This is one of the advantages of making a bigger down payment on a Washington home purchase.
A larger upfront investment on a home purchase can also help you avoid the added cost of mortgage insurance. Generally speaking, private mortgage insurance (PMI) is required whenever a home loan accounts for more than 80% of the home’s value.
So if you put down less than 20% when buying a house, you might have to pay private mortgage insurance. This can increase the size of your monthly payments.
But by making a larger down payment, you can keep your loan-to-value (LTV) ratio below the threshold that “triggers” mortgage insurance. This in turn can help you save money over the long term, especially when combined with the interest savings mentioned under point #3 above.
Home equity is the difference between the value of a home and the amount owed on the mortgage. A larger down payment increases the amount of equity that the borrower has in the home. This can be beneficial later on, if you think you’ll need to tap your equity for things like home improvements, college tuition, or retirement.
In this article, we explained the benefits of making a larger down payment on a home purchase in Washington State. We also touched on the 20% down payment threshold, which can help you avoid mortgage insurance.
But it’s important to note that a down payment of 20% or more is not always required. In fact, many home buyers across the state of Washington put down much less than 20%. The average down payment among first-time buyers, for example, is closer to 6%. And if you choose the right type of mortgage program, you could invest even less.
The point is, there are many benefits and advantages of putting more money down on a home purchase. But you don’t necessarily have to do that. If you’re having a hard time saving up for a larger down payment, you could choose one of the mortgage programs that allow for a smaller investment. It’s all about choosing the right financing option for your specific situation.
And that’s where we can help. Sammamish Mortgage has been helping home buyers and homeowners across the state of Washington for many years. We offer a broad range of home loan options, including some that have a relatively low down payment requirement. Please contact us if you have financing questions or would like to apply for a loan.
Whether you’re buying a home or ready to refinance, our professionals can help.
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No Obligation and transparency 24/7. Instantly compare live rates and costs from our network of lenders across the country. Real-time accurate rates and closing costs for a variety of loan programs custom to your specific situation.