20% Down Payment Offers Advantages

Important question made by hone buyers:   How much down payment do I need?

The answer depends on a number of things and each person's situation is unique.  This blog entry explains why some buyers save up for 20% down payment.

You need a minimum of 5% down payment in most cases to buy real estate, but some people save 20% because the mortgage rules change when you increase your down payment from less than 20% to greater than 20% down payment.  Let me illustrate by example why 20% down payment offers advantages.

Purchase Price:  $400 000
Interest Rate:  2.69%
Approximately $60 000/yr income to qualify

Down Payment of 19.5% or $78 000		Down Payment of 20.5% or $82 000
Amortized for 25 years		Amortized for 30 years
One time default insurance paid and added to mortgage:  $5700		No default insurance payment  required
Payments of $1500/month		Payments of $1285/month

The difference in monthly mortgage payments works out to $215/month 

Government rules allow those with greater than 20% down payment to amortize over 30 years.  In contrast, those with less than 20% down payment can only amortize for a maximum of  25 years.  This can make quite a difference in monthly payments as shown.

In addition, you can avoid mortgage default insurance by saving for 20% down payment.

In some cases, it will make better sense to make a 5% down payment and in some cases, it will be better or essential to have 20%.  The important things is that a buyer analyze their situation with a professional mortgage broker whom them trust to make their decision on the size of their down payment.

Note:  This blog applies to the case of owner occupied properties.