When it comes to mortgage, most Utahns are not keen to put down some money. Borrowers would only provide a down payment just because the lender has certain LTV requirements and wouldn’t originate the loan without it. But it’s more than just a requirement.
A down payment isn’t a ploy to force you to pay a particular amount initially out of your pocket. As a matter of fact, your deposit is many things but never a dirty trick. Generally, it’s a form of insurance; in some cases, it’s a symbol of your sincerity.
To help appreciate the value of your down payment in a mortgage transaction, here are some of the things it does:
It Lowers Your Loan Amount
In a nutshell, industry expert Altius Mortgage Group explains that a role of a home loan is to bridge the gap between the real estate price and your deposit. For instance, if the house and land package you plan to buy costs about $500,000 and your deposit is $50,000, your mortgage amount might be $450,000.
The higher your down payment, the lower your loan amount becomes. Why does this matter? It’s imperative to be conscious with the amount you’d borrow because it dictates your eligibility to get approved and practically defines the total interest you’d pay over time.
It Gives You Access to Lower Rates
If you put down a large deposit at the beginning, lenders would most likely let you get the best mortgage rate in Salt Lake City, Sandy or whatever Beehive State city you live in. This is because the size of your deposit determines how big a risk you are.
If you’re willing to spend a huge amount just to convince the lender to grant your loan request, then it only shows your seriousness and capacity to shoulder this major debt for many years.
It Keeps You from Going Underwater
Your down payment adds equity on your property. The larger your deposit, the more ownership you gain on your house before you even make your first monthly repayments.
You may not appreciate it now, or in the near future, but when the time comes that you want to sell the property or apply for a refinance, your home equity would play a huge role. Even if housing prices suddenly drop in your area, depositing about 20% of the real estate’s cost could help prevent you from owing more than what your property is worth.
Nobody could overemphasize how important your mortgage down payment is. Even if you qualify for a zero down loans, or 100% financing, paying little or no deposit would certainly cause you more harm than good down the road.