One of the biggest hurdles many Basking Ridge home buyers face is the down payment. The mortgage payment poses no threat to your finances. But saving up enough to put down on a home scares many first time buyers. Financial experts suggest a 20% down payment. However, some loans require as little as 3.5%. Others require even less, with VA loans allowing no money down at all. How much should your Basking Ridge down payment be? Even if you’re allowed a lower down, should you pay more? Read arguments for both sides below.
Why Should You Choose a 20% Basking Ridge Down Payment?
Financial experts across the board suggest putting 20% of the purchase price down on your Basking Ridge home purchase. Any less than that and banks charge you private mortgage insurance (PMI). This adds a couple hundred dollars or more to your mortgage payment each month. PMI protects the mortgage company in case you forfeit on your loan. It’s automatically added for anyone borrowing more than 80% of the purchase price.
When you pony up 20% for your Basking Ridge down payment, banks take you more seriously. You’re considered less of a risk. Depending on your credit score, it may even get you a lower interest rate. Your monthly mortgage payment decreases considerably due to the lack of PMI, smaller loan amount and better interest rate. Another bonus? Built in equity.
Why Should You Choose a 3.5% Basking Ridge Down Payment?
FHA loans require just 3.5% down. If you’re a first time buyer (haven’t owned a home in the last three years), you might only need 3%. Veterans can purchase a home for no money down. But even that comes with strict restrictions on what you can buy. With prices steadily going upwards, buying a Basking Ridge home right now makes sense. A lower down payment could actually increase your rate of return. For example, let’s say you purchase a home today for $600,000. Next year, it’s worth $630,000. That’s a net gain of $30,000. If you put 20% down ($120,000), your rate of return is 25%. However, if you put 3.5% down ($21,000), your rate of return skyrockets to 143%.
In the end, only you can determine whether a higher of lower Basking Ridge down payment works for your financial situation. Discuss your options with your financial adviser or lender. Having a safety net to cover unexpected costs oftentimes outweighs putting all your savings down on a new home.
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