You might be well aware of the need of making a down payment when purchasing a house. It is the first installment you willingly pay towards purchasing a home when you close a mortgage deal and the amount of it varies with home buyers who can pay a down payment of up to 30%. There are many factors that help in determining what can be the best amount for you. It reduces the total loan amount you are required to repay and hence it can help in acquiring lower interest rates. You might also come across different loans that do not automatically penalize you for making smaller payment.
The down payment you make for a house has an impact on your financial stability. Your loan to value ratio which is calculated on the basis of amount of loan left after making the payment is lower when you pay a bigger initial installment. This is because when you put down a higher amount, you are left with lower pending loan amount and hence lower loan to value ratio. This in turn is of great benefit for you as you can qualify to secure lower rates from banks, thus saving a lot in the long run.
Although, home buyers can decide upon how much they should put down, the credit history of a borrower plays a major and significant role in determining the amount of initial installment. Since this installment serves as a guarantee that you are serious about your decision of purchasing a house and would not default on loan, those with good credit rating can qualify for 5% down payment. On the contrary, people struggling with bad credit score are expected to pay bigger installment to secure funds to purchase a home. This is because people falling under such category are taken as high risk borrowers and higher amount serves as compensation in case they default on loan later.
When you purchase a home, you might be required to purchase private mortgage insurance (PMI) if you pay less than 20% for your down payment. The reason behind, as your loan to value ratio is higher, you are seen as a higher risk by most lending institutions and private mortgage insurance is considered a perfect way of expecting compensation for loan defaults. However, there are many people who are willing to purchase private mortgage insurance to pay less for their first installment. In such a case, it is wise to consult your lender and assess your financial position to find out what would work the best for you. After all, you would want some savings for unexpected situations.
You can enjoy lower down payment if you secure your qualification for federally backed loans. Lending institutions offering such loans expect you to put down less than 5%.
To sum up, if you put down a bigger amount on your home, you can enjoy lower rates and flexible loan terms. Simply speaking, an affordable mortgage is what you can expect with higher down payment.
Are you looking for the right kind of property in Mohali, Chandigarh or Kharar? If yes, then you can get in touch with us. We are one of the most trusted harjirealtors Real Estate Agents Mohali and have been serving our clients with best deals. So log on to our website http://www.harjirealtors.com or call us at the earliest!