Janis Peterson, GRI, ABR, CSP Realtor®
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Subject: How Much Should You Expect To Put Down To Buy A House?
Question: How much should you expect to put down to buy a house?
Answer: The standard down payment is 20%, although there are loan programs that are available that ask for a smaller amount.
In fact, many lenders will approve buyers paying a smaller down provided the purchaser buys private mortgage insurance (PMI). PMI is simply a policy that provides protection for the lender in the event the buyer defaults on the loan. While PMI is expensive (annual premiums usually range between .04 and .06% of the loan amount), it does enable many buyers to purchase a home years earlier that they otherwise could. And, the premium amounts decrease as the loan balance declines. PMI is no longer required once the buyer accumulates 20% equity in the home.
So, should the buyer go for a smaller down and purchaser PMI, or is the standard 20% more desirable? There are two answers -- and two philosophies. The obvious benefit to the buyer if they put down 20% (or more) is that they won't have to buy PMI insurance. They save. And, equally as important, the larger the down payment, the smaller the mortgage payment each month.
-More-The flip side of the argument is that making a smaller down payment (which means larger principal and interest payments) allows the buyer to take full advantage of income tax breaks, since interest payments are fully deductible. Secondly, money that would otherwise be used for a down payment can go into an emergency fund to guard against financial crisis, or to invest in improving the house.
Which path should the buyer follow? As is the case with every purchase, it's up to the individual.
"Real Service in Real Estate." For a personal consultation on buying or selling real estate, Janis Peterson, GRI, ABR, CSP Realtor® can be reached at (610) 642-3744, e-mail: firstname.lastname@example.org. Prudential Fox & Roach Realtors® is an independently owned and operated member of The Prudential Real Estate Affiliates, Inc.
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