You’re ready to purchase a home and while it’s entirely possible to purchase a home with a smaller down payment of 5% or even 10%, there are good reasons for gathering as much money as possible when home buying. Three big reasons why a bigger down payment are:
- Putting a down payment will have lenders looking at your employment history and credit history to see how likely you are to stop paying your mortgage. A few late payments from years before or a cell phone bill sent to collections will have lenders thinking twice about approving you with a small down payment. 10% down will have them looking at you in a different light as it shows a greater degree of commitment on your part, even think about putting an even bigger down payment possibly 20% if at all possible.
- Secondly a larger down payment results in lower monthly payments allowing you to be ready for future financial needs. Consider at some point you may need costly car repairs or eventually to purchase a replacement vehicle. If you are newly married and consider starting a family it could mean child care expenses at some point or any other unexpected expenses that arise.
- Mortgage default insurance is required with any down payment less than 20% and a 5% down payment results in higher premiums than that of 10% down payment. So a bigger down payment saves you the premium on default insurance you do not need to purchase and think of the interest you save on those premiums. Speaking of saving money by putting down the largest amount possible your interest savings will be substantial over the term of your mortgage. Keep these points in mind when considering why a larger down payment is a better choice.
Contact me for more information or questions related to down payments and getting a mortgage in the Greater Toronto Area.
