When you take out a mortgage to buy a house, you are expected to contribute to the purchase of the property with money out of your pocket. Basically, you have to make a down payment. The size of this payment has a direct impact on your home loan and on your finances as a whole. Find out what the effects are.

Loan Approval

When you put down more money, you have higher chances of getting approved for a mortgage. This is because lenders assume a lower risk when they extend a smaller amount of money. While people with high credit score and good credit history can expect to quality for a home loan even with a smaller down payment, this is not the case for those with bad credit. If you have bad credit, one of the best ways to compensate for the blemishes on your credit record is to put down more money.

Loan Size and Cost

The bigger the down payment is the smaller the home loan amount will be. When the amount is smaller, the total cost of the loan will be lower as well. This is because interest will be charged on a smaller amount. If you place more money now, you will save more in the future. This is especially the case when the term of the loan is longer. You can generate huge savings, if you go for the classic 30-year fixed mortgage, for instance.


When you have lower interest payments due to the smaller low amount, the total size of your monthly payments will be lower as well. This will make the home loan much more affordable to repay. You will have greater financial freedom. You will be able to save more for important things such as your children’s education. You will be able to make larger contributions to the home loan and repay it more quickly. Even if you have financial difficulties, the risk of default will still be lower.


Home buyers who make a down payment of 20% of the market value of the property or higher are exempt from private mortgage insurance (PMI). In recent years, the cost of this insurance has grown significantly due to the disturbances in the housing market. The FHA loans, which can be obtained with just 3.5% down payment, have some of the highest PMI costs and some of the strictest PMI requirements. By putting more money down now, you can generate even greater savings in the future.


You will have better chances of affordable refinancing if you put a bigger down payment when you buy a house. This is because you will automatically get more equity in the property. The greater your equity is the more likely you are to get approved. You can also expect to get a better deal featuring much lower interest rate and monthly payment.

Overall, the bigger the down payment is the better. You will save on the mortgage and on PMI. You will enjoy lower monthly payments and lower risk of default. Experts recommend that you put as much money down as possible. Anything over 20% of the property’s market value would be outstanding.

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