04 Jun Mortgage Planning: Down Payment Size
For the Charlotte-area homebuyer, one of the most important decisions is your down payment and how much money you choose to put down. If you are buying your first home in Charlotte, and are only able to make a small down payment, talk to your mortgage professional. Our job at Fairway Independent Mortgage of the Carolinas is to talk to you about your financial goals as well as safeguard you from making the wrong mortgage decision for your overall financial future. While lending may seems cut and dry, there are numerous factors that are personal to each customer.
If you have extra savings for your down payment, or you are moving up to a larger home, the size of your down payment is the first decision you need to make. A good mortgage planner can tell you the best plan for your using the equity from the sale of your house or explain the pros and cons of using your savings for the down payment. Your down payment can mean the difference between successfully paying off your mortgage someday and ending up in foreclosure, and even could impact when you will be able to retire.
Your down payment impacts three big areas:
-Your monthly mortgage payment
-Your interest rate
-Your savings balance
1. Monthly Mortgage Payment: The obvious one: a bigger down payment results in a lower loan balance and therefore a lower mortgage payment. You have a trade off to decide of how much you want to keep in savings versus how much lower you want your payment to be.
Down payments less than 20% will usually result in a higher payment because of PMI (Private Mortgage Insurance) that is charged to the homebuyer to protect the lender in the event of a default on the mortgage. PMI does not protect you or pay you any money, but it does allow you to buy a house in the Charlotte area with less than a 20% down payment.
2. Your Interest Rate: You will receive the lowest rate possible with at least 10% down payment. Putting down 20% or even 25% (depending on your credit score) can sometimes result in an even lower rate. Fannie Mae, the government controlled agency that sets mortgage rules, offers the best rates for people putting 30% down.
3. Your Savings Balance: This factor is too often ignored. When you make a big down payment to buy a house in Charlotte, you lower your savings balance, and you may not be able to get that money back. If you make a big down payment, and then decided a year or so later you need to get the money back out of your house, you will find that you either need to sell your house (and likely pay a real estate commission and moving expenses), refinance your house, or get a home equity line of credit.
Your mortgage payment is important, and your interest rate, is too. However, your savings balance could determine if you successfully pay off the mortgage. You don’t want to end up in foreclosure or have this decision determine if you can retire when you want to or have to keep working. If you come across hard times, home equity will not help you like a savings account will, and a big down payment will have been a bad choice. In today’s economy, having cash in the bank is one of the most important things you can do to keep yourself safe, financially.
At Fairway Independent Mortgage of the Carolinas, we will show you the “Total Cost” of your home loan choice, and, we will use our exclusive mortgage planning software to show you the impact on your savings and net worth with different down payment options. You can trust Fairway Independent Mortgage of the Carolinas to make your home loan as stress-free as possible. Call one of our offices today to get started or schedule an appointment to really look at your financial plans and help you make the best home loan decision or show you how the path toward ownership. Call us anytime. We have multiple locations across the Carolinas to make meeting convenient, or simply fill out our online application to get started.