If you have been pre-approved for a mortgage and qualify for a low down payment, you are likely ecstatic about the prospect of owning your own home. Perhaps you have not thought of a few things that can impact your home buying experience. It is possible that these things can affect the overall amount you spend on buying your home. However, there are two distinct perks that you will get by buying your home with a low down payment. You will get to own your home sooner and you can protect your savings account for any emergencies or home improvement projects. The following are other things you will face if you decide to buy your home with a low down payment.
The home buying process is often competitive. This means that there might be other buyers, with a competitive edge, who are interested in buying the same home that you are. For example, other prospective buyers might be prepared to pay a higher down payment than you, which could mean that they get the property.
Some people do not realize that their interest rates will generally be lower if they can afford to put more down on their homes. This is because you will have more equity in the home and also be borrowing less from the lender.
Low Initial Equity
The amount of equity you have in the home represents your percentage of ownership. The lender will have more equity if they are responsible for the majority of the cost of the home. The more mortgage payments you make the more equity you will have in the home, but it can take years to get significant equity in a home if you make a small down payment and minimum monthly mortgage payments.
You will be required to have mortgage insurance if you pay a low down payment on your home. The insurance fee is assessed to home buyers, but it protects the lenders against losses that might occur. This is an added expense that you may not have to face if you pay a higher down payment. You may be able to eliminate this monthly cost at some point in the future by paying off your mortgage as agreed.
You are likely aware that your mortgage payments will be higher if you make the decision to make a lower down payment. A real estate agent or mortgage broker is a good resource to use to compare the difference in monthly payments you could make if you decide to wait and put down a higher initial payment.
Contact a real estate agency like #1 Properties of Casper for more information on home buying.