Should You Save 20% for a Down Payment?

Posted by Berkshire Hathaway HomeServices Texas Realty on Friday, February 4th, 2022 at 12:12pm.

If you’re planning to buy a new home, you may be wondering about the
down payment. Loan programs require down payments as low as 3.5% for
FHA loans and conventional offers as low as 5%. While you have a lot of
options, there are 4 strong benefits to making a 20% down payment on
your home.

1. Lower Interest Rates – A borrower who can put 20% down on a
home is considered a lower-risk buyer. In addition, the lender only needs to
recover 80% of the home’s value in the event of a default. Therefore, the
interest rates will be more favorable than that of a higher loan-to-value

2. Less Interest Paid – A lower loan amount means there is a smaller
amount of money subject to interest. Over the life of the loan, putting 20%
down on the home will save you thousands of dollars in interest.

3. Your Offer is Stronger – In a highly competitive market, sellers are
more likely to accept an offer with a higher down payment. You will be
considered more financially stable and thus better able to close on the loan
and sale.

4. No PMIPMI (private mortgage insurance) is an additional fee
added to all home loan payments where the value of the home is under
80%. This provides insurance to the lender in the event of a default.

Ultimately, work with your lender to understand your options and identify the
best loan program for your needs, but putting 20% down on a home loan can
provide some nice perks.


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