On Purchasing a Home: Benefits of Paying a Large Down Payment

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When you buy a home, a lot of real estate and financial experts always advise that you make a large down payment. This is because doing so comes with a lot of benefits. But before you make a large initial payment, you need to ask the important questions on how your down payment will affect other areas of your purchase, such as mortgage payments and insurance. You have to figure out if your extra effort to raise a large down payment will benefit the long term.

Generally, it will do you a good favor. Most developers actually require buyers to pay 10 to 20 percent of the total contract price. But you can always go beyond that, especially if you have a windfall or extra cash that you are not using.

Whether you’re continuing the payment for an FHA loan or a bank, paying an initial large sum will give you the following benefits:

Manageable Mortgage Balance

A large down payment can significantly lower your mortgage balance. And this may mean that you may have to make fewer mortgage payments down the road. On top of that, you have already gained significant equity in your house; for starters, home equity is your amount of ownership over the property. Since you’ve paid a large sum of money, you can safely say that you also own a significant portion of the property already.

Lower Interest Rates

It’s important to know that the money you will borrow from the bank or lending institution will have interests—the more money you borrow, the more interests you will pay. Because a large down payment may shorten the mortgage term, the number of months you will be required to pay interest will also be reduced. In the long term, you can save a lot of money by not paying interest over an extended period.

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Lower Monthly Payments

A large down payment reduces your loan balance, the mortgage rate, and even the insurance premium. All these factors can lead you to pay lower monthly payments, something that you can easily manage. Eventually, when you have a salary increase or when your business starts making more money, the monthly payment may potentially become trivial. In which case, you may double your payments or, better yet, pay a large sum for the principal.

Managing the Competition

When you buy a real estate property, you must anticipate competition. This is especially true when it comes to prime properties and homes with an optimal location. In which case, the seller will always favor the buyer who can make a large down payment. Moreover, it’s easier to get a loan if you have already made a significant initial payment.

Save up!

Of course, not everyone can make a large down payment. But take note that it is possible to raise money to create a large capital. You have to be wise when it comes to making and managing money. You may even take side gigs and create a small business that will serve as you additional sources of income.

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