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Most People Don't Put 20% Down to Buy a Home—But Should You?

by LiveModern Webmaster last modified Oct 12, 2018 01:08 AM
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by Diana Kelly Levey last modified Oct 11, 2018

You're trying to save 20 percent to put down on your first home, but do you know exactly why you're striving for that amount? Though you don't need to put down that percentage of your home purchase price in order to buy, it does help in two major ways: It saves you money in the long run by shredding off interest and makes you a more attractive loan applicant. And while all that sounds like a great goal, it can feel impossibly to many. And even if you do find ways to save up that money, will you be sacrificing an otherwise fun and fulfilling life? While 20 percent down may seem like the standard down payment, it's actually far from that. According to the National Association of Realtors , in the last five years more than 70 percent of first-time home buyers (who didn't pay all-cash)—and 54 percent of all buyers—made down payments of less than 20 percent. What's getting in the way of us hitting this savings goal? According to that same 2017 report, savings barriers varied amongst the age groups. Around 23 percent of respondents ages 36 and younger said that saving for a down payment was the most difficult task in the home buying process, often citing that student loan debt held them back. Respondents also pointed to credit card and car loan debt as stalling factors. "There are very practical reasons why people say you should aim for 20 percent, but I know as a first-time buyer, that's a lot of cash upfront," says Farnoosh Torabi, personal finance journalist, host of the podcast " So Money ," and Chase Slate Financial Education Ambassador. "When you put that money down, your risk assessment goes down in a good way. In other words, you're not seen as risky of a borrower as someone who has just five percent down." Putting down 20 percent means you won't have to pay private mortgage insurance (PMI) and you'll also likely get a better interest rate—two things that will give you a lower monthly mortgage payment. Additionally, having more secure financing will often sweeten your bid to help you get the home you want. If you're still figuring out how much money you want to put down on a home, here are some helpful factors to consider: READ MORE »





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