Down Payments Are Just A Good Idea

[Aug 18, 2008.]

 

Buying a home is one of the most important purchases that a consumer can make. Owning a home is not only an important investment but many believed that it is the realization of a very important dream. For consumers living in the United States buying a home is achieving the American Dream, for others it is seen as a right.

Many who go into the housing market are new to making such a purchase and do not understand the need for that initial down payment. With loans and mortgages many consumers are not waiting until they have sufficient money saved up to make even the 20% of the down payment. Experts agree that this is a mistake which will cost the new home owners several thousands of dollars each year.

Down payments vary from neighbourhood to neighbourhood depending on various factors such as wages and unemployment rates and such. No matter the cost of the down payment, home owners should at the very least have 20% of that amount before buying the home. This is to avoid the added fees of having a private mortgage insurance.

Private mortgage insurance is required in most areas where the buyer takes out a loan to cover more then 80% of the value of the home. So having a mere 10% or 15% of the down payment for the home is not going to cover it.

The payment for the mortgage insurance does not go towards the balance of the home or the loans so it is money that buyers could save if they had waited before buying. Along with avoiding any extra costs such as the private mortgage insurance, buyers who save up 20% can qualify for better loans which will keep those monthly mortgage payments at a manageable level.

Financial advisors understand that saving up for a down payment is hard and it can be just too tempting to take out a loan that covers most of the value of the home. Patience is important and will pay off in the end.