How Much Money Should A Plano Home Buyer Put Into a Down Payment?
One of the largest challenges for Plano homebuyers in today's real estate market is finding enough money to make a significant down payment on a home purchase. How much of a down payment does a Plano home buyer really need to be able to secure an affordable mortgage? This really all depends on the type of loan you choose, the lender, and the best lending scenario for your personal finances.
First off, what is a down payment?
Before getting into how much a Plano home buyer should expect to make on a down payment it is a good idea to clarify what a down payment for a home purchase is. The down payment on a home purchase is the cash the homebuyer pays upfront out of their own personal cash when purchasing a home. In a way, it is a nonrefundable deposit to help communicate to both the home seller and the lender that you are serious and responsible for purchasing the home.
Traditional down payment requirements
Down payments are most often paid in a percentage of the overall price of the home. And traditionally the most anticipated percentage for a down payment is 20%. Lenders require down payments on a majority of loan programs but there are some loans that do not require any down payment. Some homebuyers have bought into the thought that they automatically need to put 20% down in order to qualify for a home loan. There are many loan programs that do require this 20% down but there are a growing number of loan programs that require a lesser down payment. In 2023 the National Association of Realtors showed that the average down payment for first-time buyers was only 8% and repeat buyers had an average of 19%.
The benefits of making a larger down payment
The more money you put into your down payment be more beneficial it can be to you as a Plano homebuyer. The most common benefits of making a larger down payment are:
Lower interest rate
Homebuyers who make a larger down payment with their own cash communicate that they are less of a risk to loan money to and that they are ready to bear a significant portion of the responsibility in buying the home. This can translate to being offered a lower interest rate because you are borrowing less of the home's overall price and value and are seen as less of a lending risk.
It earns more equity
Equity is the current market value of the property minus the amount the homeowner owes on their mortgage loan to pay off the property. It is the measurement of your home being an asset rather than a debt. The higher the amount of equity the larger your personal wealth portfolio becomes.
Less money paid out over time
The largest amount of money you will pay for the purchase of your home when taking out a mortgage loan is the total interest over the life of the loan. Making a larger down payment means borrowing less money and this means paying less interest which can save you thousands of dollars over the total life of your loan. It can also translate to a lower monthly mortgage payment.
No private mortgage insurance
Several mortgage programs with down payments of less than 20% will ask that the home buyer carry private mortgage insurance to help ensure that the lender is covered in the possibility of a loan default. Private Mortgage Insurance is often added to the monthly loan payments. In some cases, this insurance can cost as much as a couple of hundred extra dollars a month. This insurance is required to be carried by the home purchase or until they have paid off a certain percentage of the loan.
Should you make a higher down payment?
The answer to making a higher down payment really depends on the type of loan you are being offered. It is always good for a Plano homebuyer to look at more than one mortgage option and ask a lender what they would offer if you were to put down different amounts as a down payment. You may find that the best mortgage option for you is making a lesser down payment. It is always best to talk with her financial advisor as you consider which mortgage option will lead to a healthy home purchase.
If you are shopping for homes in Plano I can help. Contact me anytime to get started on your next Plano home purchase. I am here for any Plano real estate need you have and I'm here to help take the stress out of buying or selling a Plano home.