When you’re buying a home for sale in Midland, you should try your best to come up with a substantial down payment. This guide explains why.

3 Reasons to Come Up With Your Best Down Payment When You Buy a Home in Midland

If you’re like many people, you know that lenders would like for you to put down 20 percent when you buy a home. However, it’s not mandatory for all loans – in fact, some mortgage products are available when you put nothing down.

But here are three reasons you should try to come up with your best down payment when you buy a home in Midland (or anywhere else):

  1. Your monthly mortgage payments drop
  2. Your lender won’t make you buy private mortgage insurance
  3. You’ll most likely qualify for better interest rates

Here’s a closer look at each.

Reason #1 to Come Up With Your Best Down Payment: Lower Mortgage Payments

Your monthly mortgage payments depend on how much money you finance through a lender. The more you borrow, the higher your payments will be.

The following table outlines the differences in down payments and monthly payments when you’re buying a $500,000 home with a 30-year, fixed-rate mortgage at 3.9 percent interest. Naturally, your interest rate will vary based on several factors (including your credit score and the amount of money you put down), so this table is just to give you a quick look at what could happen.

Down Payment Amount Financed Monthly Payment
$0 $500,000 $2,753
$10,000 $490,000 $2,706
$25,000 $475,000 $2,635
$50,000 $450,000 $2,517
$75,000 $425,000 $2,399
$100,000 $400,000 $2,281
$150,000 $350,000 $2,045

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Reason #2 to Come Up With Your Best Down Payment: No PMI

When you put down less than 20 percent (with a few exceptions, such as VA loans), your lender will most likely make you pay for private mortgage insurance. Private mortgage insurance, or PMI, protects your lender (not you) in the event that you default on your payments. The PMI kicks in and pays your lender a portion of the loan that you haven’t yet paid off; you’ll still go into foreclosure if you fail to make your payments.

Lenders require borrowers to pay for PMI when they put down less than 20 percent because they view the down payment as an investment. If a lender feels you don’t have enough “skin in the game” (meaning at least 20 percent of the equity in the home came from your pocket), they’ll require you to pay for insurance to protect their investment.

You can typically stop paying for PMI when you’ve reached 20 percent equity in your home.

Related: What is a VA loan?

Reason #3 to Come Up With Your Best Down Payment: Better Interest Rates

When you have more of your own money invested in a home, lenders see you as a lower risk than people with less invested. That means you’ll most likely qualify for better interest rates than you would with a lower down payment. However, interest rates change all the time – and the best way to find out what rates you qualify for is to contact a lender and examine different down payment scenarios.

Are You Buying or Selling a Home in Midland, Texas?

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