Should You Save a 20% Down Payment to Buy a Home?

Published On: October 31, 2021|Categories: Blog, Buyers, Home Buyers, Mortgages|Tags: Buying a Home, Cons of Home Down Payment, Down Payment on a Home, Pros of Home Down Payment|

Buying a home is a big financial decision. One of the biggest considerations is the down payment. A 20% down payment has been the gold standard for years, but is it always necessary? In this article, we’ll explore the pros and cons of saving a 20% down payment and other options you may want to consider.

What is a Down Payment?

A down payment is the money you pay upfront when you buy a home. This payment is a percentage of the total cost of the property. For example, if you’re buying a $500,000 home and put down 20%, your down payment would be $100,000.

The Pros of Saving a 20% Down Payment

Check out the benefits of saving up your cash to make a 20% down payment.

Less Debt

One of the biggest advantages of saving a 20% down payment is that you will have less debt. If you don’t put down 20%, you will have to take out a larger mortgage, which will increase your monthly mortgage payment and the amount of interest you pay over time.

Lower Monthly Mortgage Payment

A larger down payment means a smaller mortgage, which translates to a lower monthly payment. This can be a great relief to your budget and improve your financial flexibility.

No Private Mortgage Insurance

If you put down less than 20%, you may be required to pay private mortgage insurance. This insurance protects the lender in case you default on your loan. With a 20% down payment, you can avoid paying PMI, which can save you thousands of dollars over the life of your loan.

Lower Interest Rates

Lenders usually offer lower interest rates to borrowers who put down a larger down payment. This is because a larger down payment reduces the lender’s risk and demonstrates your financial responsibility, making you a more attractive borrower.

The Cons of Saving a 20% Down Payment

Nobody said saving 20% would be easy. These are some of the cons to doing so.

Longer Wait to Buy

Saving a 20% down payment can take time. Depending on your savings rate, it can take years to accumulate enough money for a 20% down payment. This may delay your home-buying plans and make it more difficult to take advantage of market opportunities.

Opportunity Cost

While you’re saving for a down payment, you may be missing out on other opportunities, such as investing or paying off high-interest debt. Depending on your financial situation, it may make more sense to allocate your money elsewhere.

Other Options to Consider

The following sections describe other options you may want to consider.

FHA Loan

An FHA loan is a government-backed loan that allows borrowers to put down as little as 3.5% on a home. These loans are available to borrowers with lower credit scores and may be a good option if you don’t have a large down payment saved.

VA Loan

If you’re a veteran or active-duty service member, you may be eligible for a VA loan, which allows you to buy a home with no down payment. These loans have lower interest rates than traditional mortgages and are backed by the government.

USDA Loan

A USDA loan is another government-backed loan that allows you to buy a home with no down payment. These loans are available to borrowers in rural areas and have lower interest rates than traditional mortgages.

What’s Right for You?

Ultimately, the decision of whether to save a 20% down payment or explore other options depends on your financial situation and goals. Saving a 20% down payment may be the right choice for you if you want to avoid debt and can afford to wait. Other options like an FHA loan, VA loan, or USDA loan may be a better fit if you don’t have a large down payment saved.

$719,000

938 E Jasper Dubois Road Jasper, Indiana

5 Beds 4 Baths 5,700 SqFt 6.100 Acres

Listing courtesy of Kevin Bayer from RE/MAX Local.

$597,000

3289 St Charles Street Jasper, Indiana

4 Beds 4 Baths 3,906 SqFt 0.595 Acres

Listing courtesy of Annette Wigand from ERA FIRST ADVANTAGE REALTY, INC.

$560,000

1441 N Wheatland Drive Jasper, Indiana

4 Beds 3 Baths 3,009 SqFt 1.560 Acres

Listing courtesy of Judy Gosman from RE/MAX Local.

$559,900

1928 S A St. Jasper, Indiana

3 Beds 4 Baths 3,376 SqFt 6.258 Acres

Listing courtesy of Larry Carpenter III from Carpenter Realty LLC.

$534,900

5070 W Alder Creek Drive Jasper, Indiana

4 Beds 3 Baths 4,208 SqFt 1.500 Acres

Listing courtesy of Stephanie Hasenour from RE/MAX Local.

$475,000

4536 W 150 N Jasper, Indiana

4 Beds 4 Baths 2,986 SqFt 1.482 Acres

Listing courtesy of Stacey Thieman-Wright from THIEMAN REALTY.

$448,900

1525 Grandview Drive Jasper, Indiana

3 Beds 3 Baths 4,132 SqFt 0.354 Acres

Listing courtesy of Stacey Thieman-Wright from THIEMAN REALTY.

$420,000

3237 Dogwood Drive Jasper, Indiana

3 Beds 4 Baths 4,326 SqFt 0.675 Acres

Listing courtesy of Larry Carpenter III from Carpenter Realty LLC.

$399,900

247 N Westlin Drive Jasper, Indiana

3 Beds 3 Baths 2,849 SqFt 0.999 Acres

Listing courtesy of Annette Wigand from ERA FIRST ADVANTAGE REALTY, INC.

$399,000

836 W 20th Street Jasper, Indiana

3 Beds 3 Baths 4,376 SqFt 0.590 Acres

Listing courtesy of Elizabeth Mehringer from RE/MAX Local.

$349,900

1245 W 6th Street Jasper, Indiana

4 Beds 3 Baths 3,610 SqFt 1.300 Acres

Listing courtesy of Steve Wigand from ERA FIRST ADVANTAGE REALTY, INC.

$339,700

872 S Countryside Drive Jasper, Indiana

3 Beds 2 Baths 3,498 SqFt 2 Acres

Listing courtesy of Linda Schroering from CENTURY 21 SCHROERING REALTY.

$339,000

3255 E State Road 164 Jasper, Indiana

4 Beds 3 Baths 2,944 SqFt 1.024 Acres

Listing courtesy of Zach Holt from Whitetail Properties Real Estate.

$335,000

1911 S A St. Jasper, Indiana

3 Beds 2 Baths 1,468 SqFt 0.314 Acres

Listing courtesy of Larry Carpenter III from Carpenter Realty LLC.

$322,500

1761 Sugar Pine Drive Jasper, Indiana

3 Beds 2 Baths 1,829 SqFt 0.346 Acres

Listing courtesy of Ryan Craig from RE/MAX Local.

Are You Thinking of Buying a Home in Dubois County?

Use our site to search homes for sale in Jasper, Dubois, Spencer, Martin and Davis counties, as well as all the surrounding communities. Unlike the “big name” sites out there, at Sell 4 Free Welsh Realty, our site is directly connected to our local MLS. We update it with new homes every hour.

Sign up for new listing alerts so you can stay on top of the newest homes for sale – and get price change alerts so you can stay ahead of other buyers and beat them to the hottest deals!