When buying a new home we are mainly focused on the price of the home, the square footage, the number of bedrooms and the neighborhood. We are not as focused on the down payment, which is crucial, as it affects your monthly mortgage payments and interest.
It is generally suggested that your down payment is at least 20% of the price of your new home. This amount is subtracted from the total price of the new home and the remaining amount will be your mortgage amount.
If you are able to pay more than 20% you will be able to borrow less money, meaning you will be paying less interest.
Also, if you are able to pay 20% or more, you will not have to have pay PMI, which is Private Mortgage Insurance, also known as LMI, or Lenders’ Mortgage Insurance. This is insurance which protects the lender if you default on your loan, but is not usually required if your mortgage is 78% of your home price or less.
Having a little discipline up front and saving up for a higher down payment can save you substantial money on your mortgage.
Learn more about PMI insurance:
See the effects of a larger down payment with this mortgage calculator.