Jason Bonarrigo Explains the Benefits of a 20% Down Payment

WESTWOOD, Mass. - June 23, 2014 - PRLog -- These days, mortgages come in all shapes and sizes. There are fixed rates and adjustable rates, jumbo loans, loans with differing terms such as 15- or 30-year, and specialized loans through FHA and VA programs. Each of these loans carries with it different interest rates and different stipulations. And while recent programs have made it easier to get around the traditional idea of putting 20% down on your home purchase, there is some reasoning behind that number.

Here are a few of the benefits you can expect to see if you are able to swing a 20% down payment on your new home:

·   Increased initial equity. Congratulations! You already own a fifth of your property's initial value the moment you start paying on your loan. Having this equity means more financial security. You'll be in better shape to refinance your home in the future if interest rates drop and your equity can put you in good position to take out a home equity line of credit (or HELOC) if you have expenses in the future such a home improvements, education expenses, or unforeseen medical costs. Increased equity also reduces the chances that you'll go "underwater" on your home if the real estate market takes a substantial down turn.

·   More favorable interest rate. As a rule of thumb, lower interest rates go to borrowers who can put a larger sum down on a property up front. Your hefty down payment serves as proof to your lender that you can hold on to a sizable amount of cash – which makes you a better risk than a borrower who can put little cash on the table. As a result of both a lower interest rate and a paying down substantial portion of your property's value up front, you'll see lower monthly mortgage payments than someone who can't swing a larger down payment.

·   No PMI. If you can't swing a 20% down payment, you'll need to pay for PMI (professional mortgage insurance) to offset your risk. Avoiding having to pay PMI means a yearly savings until you achieve enough equity to negate that risk.

·   An attractive offer. Recently, the real estate market has heated up and it's not unheard of for a property to see multiple offers. You can make your offer more attractive to a seller if you offer a large down payment – proving that you're serious about buying the property. If you have to go up against other buyers in a bidding war, that large down payment might just give you the clout to edge out the competition.

·   Faster path to ownership. You're already 20% in, which means that you're a lot closer to paying off your home than someone who can only afford to put 5% down.

Not everyone can afford a down payment of 20%, and there is no reason to despair if you can't make it work. There are plenty of loan programs available for buyers with all types of financial situations. But if you are fortunate enough to have 20% of your new home's value at your disposal, having that amount of equity up front can only benefit you in the long run.