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.
- 5 Bedrooms
- 5 Bathrooms
- 5,596 Sq Ft
- 0.890 Acres
3265 Foxridge Drive Jasper, Indiana
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Listing courtesy of Brenda Krempp from RE/MAX Local.
- 3 Bedrooms
- 4 Bathrooms
- 4,319 Sq Ft
- 1.600 Acres
1015 W 15th Street Jasper, Indiana
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Listing courtesy of Caroline Gobert from ERA FIRST ADVANTAGE REALTY, INC.
- 3 Bedrooms
- 2 Bathrooms
- 2,940 Sq Ft
- 14.820 Acres
1089 N 400W Jasper, Indiana
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Listing courtesy of Zach Holt from Whitetail Properties Real Estate.
- 4 Bedrooms
- 4 Bathrooms
- 3,906 Sq Ft
- 0.595 Acres
3289 St Charles Street Jasper, Indiana
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Listing courtesy of Annette Wigand from ERA FIRST ADVANTAGE REALTY, INC.
- 4 Bedrooms
- 4 Bathrooms
- 3,955 Sq Ft
- 1.200 Acres
980 W Twentieth St. Jasper, Indiana
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Listing courtesy of Larry Carpenter III from Carpenter Realty LLC.
- 4 Bedrooms
- 3 Bathrooms
- 3,610 Sq Ft
- 1.300 Acres
1245 W 6th Street Jasper, Indiana
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Listing courtesy of Steve Wigand from ERA FIRST ADVANTAGE REALTY, INC.
- 3 Bedrooms
- 2 Bathrooms
- 3,076 Sq Ft
- 1 Acres
3515 Villa Drive Jasper, Indiana
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Listing courtesy of Leanna Graves from RE/MAX REVOLUTION.
- 3 Bedrooms
- 3 Bathrooms
- 2,650 Sq Ft
- 0.780 Acres
3264 Lakeside Dr. Jasper, Indiana
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Listing courtesy of Larry Carpenter III from Carpenter Realty LLC.
- 4 Bedrooms
- 2 Bathrooms
- 3,490 Sq Ft
- 0.371 Acres
307 Newton Street Jasper, Indiana
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Listing courtesy of Tama Stemle from RE/MAX Local.
- 4 Bedrooms
- 4 Bathrooms
- 2,961 Sq Ft
- 0.294 Acres
333 Daisy Lane Jasper, Indiana
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Listing courtesy of Linda Schroering from CENTURY 21 SCHROERING REALTY.
- 3 Bedrooms
- 2 Bathrooms
- 1,650 Sq Ft
- 0 Acres
614 W 34th Street Jasper, Indiana
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Listing courtesy of Daniel Hoffman from HOFFMAN & MULLEN REALTY INC.
- 5 Bedrooms
- 3 Bathrooms
- 2,377 Sq Ft
- 0.346 Acres
1780 Sweet Gum Drive Jasper, Indiana
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Listing courtesy of Amanda Childers from Hawkins & Root Real Estate.
- 3 Bedrooms
- 2 Bathrooms
- 3,232 Sq Ft
- 0.520 Acres
3508 N 600 W Road Jasper, Indiana
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Listing courtesy of Caroline Gobert from ERA FIRST ADVANTAGE REALTY, INC.
- 3 Bedrooms
- 2 Bathrooms
- 1,648 Sq Ft
- 0.340 Acres
4130 N Portersville Road Jasper, Indiana
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Listing courtesy of Gina Mehringer from F.C. TUCKER EMGE.
- 3 Bedrooms
- 3 Bathrooms
- 2,172 Sq Ft
- 0.460 Acres
1244 W 14th Street Jasper, Indiana
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Listing courtesy of Steve Lukemeyer from F.C. TUCKER EMGE.
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Newest Homes for Sale in Dubois County
View the newest homes listed in Dubois County in the last 10 days:
980 W Twentieth St. Jasper, Indiana
4 Beds 4 Baths 3,955 SqFt 1.200 Acres
Listing courtesy of Larry Carpenter III from Carpenter Realty LLC.
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4 Beds 3 Baths 3,610 SqFt 1.300 Acres
Listing courtesy of Steve Wigand from ERA FIRST ADVANTAGE REALTY, INC.
1919 Irvine Court Huntingburg, Indiana
3 Beds 2 Baths 1,562 SqFt 0.270 Acres
Listing courtesy of Carson Lowry from RE/MAX REVOLUTION.