Can you afford to put 20% down on your new home? If you can’t, you’re not alone. Many homeowners can’t afford to pay a hefty chunk of the total value of their homeprior to moving in. In the past, it used to be non-negotiable, but today, there are many options for down payments, from 50% to nothing at all. So what figure can you afford to put down on your fixed rate home loan?
Whatever you decide, remember this: the more you put down now, the less you’ll have to borrow and repay later.
Understanding Private Mortgage Insurance (PMI)
First of all, it’s important to get familiar with the PMI, otherwise known as the ‘private mortgage insurance’. Despite the extra cost, it’s a smart investment that might save you a very big financial headache down the road.
If you have to default on your home loan at some point in the future, the PMI, which can be purchased from your mortgage lender, can save you from getting into steep financial trouble. The good news is that once you have paid off 20% of your home’s purchase price, it can be cancelled.
How Much Should You Put Down?
Thisdepends entirely on your own unique financial position. If you can afford to put more down now, there is no real downside to doing so. Just make sure that you don’t completely empty your savings account; you will want to have some money in the bank in case of an emergency.
What Qualifies as a Deposit?
Believe it or not, you don’t have to empty your savings account in order to make a deposit. You can use monetary gifts, inheritances, tax refunds and proceeds from the sale of assets. You can also make use of government grants, such as the First Home Owner Grant. But remember – you will have to hand over some of your own personal wealth, as you cannot rely solely on government grants to obtain a home loan.
What Will Increase My Chances of Landing a Home Loan?
Lenders tend to look at a number of areas when deciding whether or not you are a suitable candidate for a loan. These areas include:
- Good credit history.
- Stable employment history.
- Low debt levels.
- Medium to high income.
- Owning other assets, such as cars or property.
Take Your Time
One of the keys to success in obtaining a good home loan is patience. If you rush into purchasing a home without looking around for lower interest rates, you may find yourself in a bind in 1 or 2 years’ time.
Instead, go through the buying process slowly and cautiously. Take the time to research all of your options, including the various lenders who can help you look for cheap home loans, as well as local and national organisations that are committed to helping families find low-income housing.
Many people find that securing a home loan is a confusing process, but with this guide in hand, it should be a little clearer.