Many of us comply with certain financial traditions, such as the annual payment of taxes, saving money for retirement and putting off funds for a down payment in order to take, for example, a loan for a house. In addition to purchasing a house or apartment, it can be a car or another major purchase.
Some people may be deterred by a large down payment on a loan, but you need to understand that your readiness for this moment can greatly increase the chances of getting a loan and a long-awaited purchase.
Home loan – down payment
To take a loan for a house in most cases you will need to make an advance payment of 20% of the purchase amount. This means that if a property is bought for $ 40,000, the initial payment will be $ 8.000. Although, there are exceptions to this rule, most often, the figures, approximately, such. One fifth of the amount, in the form of a down payment, appeared after 2008, as a result of a collapse in the housing market. Then a lot of risky and unwarranted mortgage loans offered by banks were revealed.
For car loans, for example, it is much more difficult to determine a standard down payment. Some people pay this maximum amount. Given the large number of dealers and stocks to buy a car, the standard rule of 20% is much less common than in the case of a home loan.
Exceptions to the rules
When it comes to buying a home on credit, there are several cases where the standard 20% can be lower. For example, various government support for mortgage lending can reduce this amount by an average of 3.5%. Certain discounts apply to former military personnel whose initial contribution may be reduced to zero. People with a good, or rather an ideal credit history can safely count on a reduction in the initial payment.
Why do banks prefer a larger advance?
Banks, above all, reduce their risks. One of which, for example, the decline in the value of real estate at these same 20%. And, of course, the consumer who invests a significant amount will be more responsible in relation to the loan agreement. Also, if a borrower has invested 20% on a loan, he has an understanding that the total amount of a home loan has already decreased by the size of this installment, which gives a certain incentive to repay the loan to the end.
The advantages of a large down payment when you take a loan for a house
A large advance payment means smaller monthly payments, and ultimately an overpayment on the loan will be less.
There is another reason why an advance of 20% or more would be a good choice for a borrower, especially when it comes to a home loan. Mortgage insurance. Not many of those who buy a house in the first, know about this insurance. With an initial payment of more than 20% there is a chance to reduce insurance payments and, even, completely refuse it.
Do not forget about another interesting point. You should not rely on refinancing, which can reduce monthly payments if your home loan is not paid by 20% or more.
Once you have reached a loan payment of up to 20%, you can hire an appraiser to assess the condition of your home. If it is in good condition, the appraiser will submit a report to the lender, after which the interest rate on the loan may decrease.
You should not be bad about the down payment, it has some positive aspects. Accumulating 20% of the cost of housing or any other major purchase can be a test for many of us. But try to do it gradually. A savings account can help in this matter, to save money and forget about its existence. Then the required amount will gradually accumulate.