When purchasing a big ticket item, such as a house, it is common to seek financing. Applying for a loan enables you to pay for these high-dollar items slowly over time with regular monthly payments, but it is customary and often even required by the lender for you to make a down payment at the time of purchase. If you are preparing to apply for a loan on a house, you may be wondering how much money you need to contribute as a down payment. With a closer review of some common considerations, you can make a more educated decision about your down payment amount.

 

What the Experts Advise

Your down payment amount will play a direct role in your loan amount and monthly payment. It will also impact your starting equity, and it can even affect your financial status after you make the purchase. After all, if you put down more money than is truly affordable for you, you may be financially tapped out after the purchase. This can leave you vulnerable until your bring your account balances back up. Financial experts advise that you typically put at least 10 to 20 percent down on a house purchase. If the property will be used as an investment rather than a primary residence, 20 to 25 percent or more is a preferred down payment amount. 

 

Creating an Affordable Loan Payment

While these advised down payments are common, it is important to consider your personal budget as well. Your loan payment should be affordable for your budget, and you can use an online loan payment calculator to estimate your monthly payment based on different loan amounts. If you discover that the recommended down payment amount creates loan payments that are too high for your comfort level, making a larger down payment is advisable. Some people may discover that they need to find a more affordable house to purchase, or they need to save for a longer period of time.

 

A Word About Equity

Your inclination may be to make a lower down payment and to retain cash in your bank account. Your down payment amount should not leave you strapped for cash, and you should still feel comfortable with your financial status after you make your down payment. By making a larger down payment, you have greater built-in equity. Find an amount that is comfortable for you and your financial situation.

 

As you can see, there is no right or wrong answer regarding how much money you should use as a down payment on a house. You can use the financial experts’ advice as a starting point to make your estimates. However, you also should review your budget and consider a down payment amount that you are financially comfortable with. The best down payment amount will provide you with some built-in equity, and it will also not negatively impact your financial status. 

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