Ease the Burden of Home Loans by Making a Bigger Down Payment

A miniature house on a calculatorOwning a home is the goal of most families. While renting is an option in the early years, most realize that it is a dead-end deal as you will never get to own that property permanently. You are also dependent on the decisions of the rental unit's owner or landlord, and you are never 100% sure of what will happen in the future.

Home Loan Requirements

The problem with buying a property, however, is that you can never pay it in full unless you have enough savings to settle the purchase amount. If you don't, the next best step is to get a loan. 

Now, getting a home loan is not easy. The lender, usually a bank, requires many things. You must have a stable source of income and a good credit score, among others. If you can't fulfill these requirements, the lending agency will not take the risk of releasing the loan.

Down Payment, a Stumbling Block

Assuming that everything is well with you, credit- and income-wise, the next condition is the down payment. As you know by now, every mortgage loan requires a down payment, an upfront deposit given by the borrower to the lender as a commitment to paying his debt. It is at this point that things become difficult. A good-sized cash out may cost thousands of dollars, which a young family might not be able to afford.

So, unless you have substantial savings, you would opt for a lesser down payment. Doing so will be costly in the long run, though, because your monthly amortization will be based on your down payment amount. Also, a mortgage insurance is required for down payments under 20% of the loan.  

Advantages of a High Down Payment

No need for mortgage insurance – The recommended down payment is at least 20% of the loan amount; paying more than that is ideal for many lending institutions. The initial advantage of paying 20% and higher is that you don't have to pay for mortgage insurance, saving you hundreds or thousands of dollars during the first few years.

More home equity – Another benefit is that you will have a bigger stake in your home equity right away.  This is very important, should you decide to take out a home equity loan in the future for home improvements or personal matters.  Sadly, many cannot take advantage of their property’s increased market value because they do not have much home equity.

Better terms – And most importantly, a bigger down payment allows you better options for the interest rate and loan term.  With this, the amortization payments may be lessened, enabling you to focus more on the family’s needs rather than just paying off the house.  This also translates to bigger savings in the long run as even a small reduction of interest means a lot of money saved.

Help for Those in Need

The great news for families struggling to raise the ideal down payment amount is that there are financing companies that offer assistance, especially if you are in Ogden, Utah. These companies have very fair rates and terms, enabling you to make that initial cash out and save money over time.