don't want you to be surprised when you finally set out to purchase
a home. That's why now, we'd like you to consider the following:
How much money you should save for the down payment and closing
costs for the purchase of your home?
your down-payment money is going to come from?
you should invest this money while you're awaiting the purchase
The 20 percent solution
you should purchase a home and have enough accumulated for a down
payment so that your down payment represents 20 percent of the purchase
price of the property. Twenty percent down is the magic number because
it's a big enough cushion to protect lenders from default.
for example, a buyer puts only 10 percent down, then property values
drop 5 percent, and the buyer defaults on the loan. When the lender
forecloses -- after paying a real estate commission, transfer tax,
and other expenses of sale -- the lender will be in the hole. Lenders
found they are far less likely to lose money on mortgages where
the borrower has put up at least a down payment of 20 percent of
the value of the property.
Less than 20 percent and private
mortgage insurance (PMI)
like most people, you plan to borrow money from a bank or other
mortgage lender, be aware that almost all require you to obtain
(and pay for) private mortgage insurance (PMI) if your down payment
is less than 20 percent of the purchase price of the property.
PMI typically adds several hundred dollars annually to the cost
of your loan, it protects the lender financially if you default.
You can also expect worse loan terms such as higher up-front fees
and/or a higher ongoing interest rate on a mortgage when you make
a down payment of less than 20 percent.
Next Step: Closing Costs
To Buyer Services