What’s Up with Down Payments?
With the housing market in recovery, 10% minimum down payments on mortgages may become increasingly common.
For the past several years, 20% has been the minimum down payment for standard loans, but as the market recovers and lenders relax (a little), there’s talk of 10% down becoming more widely accepted.
A lower down payment doesn’t come without hurdles. For one thing, in order to qualify, you are probably going to need a stellar credit score. Another likely requirement will be mortgage insurance, which protects the lender in case you default on the loan.
In a typical agreement between lender and homebuyer, mortgage insurance is not always involved, because with 20% or more down, the lender figures that defaulting will hurt you more than the bank. (Use this calculator to estimate the cost of mortgage insurance in your case.)
Home values are improving, but most economists predict they will not rise rapidly. If you put 10% down, it will take longer to accumulate equity, one result being that you will have less to draw on for a home equity line of credit down the line.
Depending on your situation, a 10% down payment may be well worth the accompanying complications. To be sure you’re making the right choice, however, it’s wise to calculate, and discuss with your lender, the fees and factors attached to different down payment sizes (i.e, 10% versus 20% down).