Although low and no down payment mortgages are not nearly as popular as they were in the late 1990s and early 2000s, they can still be found if you know where to look. The other side of that coin is to avoid the temptation of trying to buy a home with little or no down payment, opting to hold off and save a larger down payment instead.

It is not our business to determine your down payment for you. As a Colorado home mortgage broker, our job is to compare home loans based on your circumstances and offer you the best possible choices. With that said, there are compelling reasons to save a larger down payment even if that means holding off on buying for a year or two.

1. You’ll Pay Less Interest

When it comes to mortgage interest, your two biggest enemies are principal and time. Principal is the amount of money you borrow. The more you borrow, the more interest you will pay over the life of your loan. As for time, you pay less interest by paying off your loan more quickly.

A larger down payment reduces the total amount you need to borrow. Play your cards right and you might be able to swing a 20-year mortgage instead of going for 30 years. Cutting a decade off your mortgage payments will save you tens of thousands of dollars in interest.

2. You Could Get Better Rates

Though there are no guarantees, coming in with a higher down payment generally increases your chances of getting a better interest rate. Why? Because a higher down payment equates to a lower loan-to-value (LTV) ratio. In turn, a lower LTV means less risk for the lender. You may be rewarded with a lower interest rate.

3. Avoid Paying Mortgage Interest

Private mortgage insurance (PMI) is generally required when buyers don’t bring at least 20% to the table. PMI only adds to the total cost of your monthly payments. And assuming you make good on your mortgage, you don’t actually benefit from carrying the insurance. Only your lender does. The good news is that you could avoid PMI altogether with a down payment of 20% or more.

4. A Stronger Bargaining Position

A buyer’s bargaining position matters a great deal in any market. But in a highly competitive market, like the one we’ve been in for the last couple of years, coming in with a higher down payment strengthens a buyer’s position.

A higher down payment increases the chances of obtaining a favorable mortgage. This is something sellers are looking for. A higher down payment also tells sellers you are serious about buying and are less likely to default on a mortgage. A seller is more likely to bargain with you compared to someone else coming in with just 10% down.

5. You Instantly Have More Equity

Home equity is the difference between what you owe on your mortgage and the current value of your property. Buyers instantly have equity based on the amount they put down. A larger down payment equals more equity from day one. As a bonus, a higher down payment means you are paying less toward interest every month. You are building equity faster with every mortgage payment.

No doubt there are valid reasons for attempting to buy a home with as little down as possible. But there are equally valid reasons to hold off on buying while you save a larger down payment. We urge you to consider all your options carefully before deciding which way to go. We can guide you as a trusted Colorado home mortgage broker to help you understand your options and reach your goals as a homeowner. Contact us today to schedule your free consultation or apply now for some of our loan options.