6 Reasons to Love a 20% Down Payment

The gold standard that so many people forgot about.

Mar 23, 2014 at 9:00AM

There are many challenges that come into play when you’re in the market to buy a home. According to Trulia's American Dream survey, consumers said the number one obstacle to homeownership was saving enough for a down payment. What exactly is the down payment? It’s the amount of money that you, the buyer, kick in out of your own pocket, right at the start, toward the purchase of the house. But exactly how much do you need to put down?

A smart rule of thumb is always try to put 20 percent down. Period. It’s the gold standard that so many people forgot about when they were buying homes they could not afford in the mid 2000′s.

But what does one need to understand to help you come to terms with the 20 percent down number? Let us explain. See below for all the reasons why you should love the idea of a 20% down payment.

1. Improved Chance You Will Actually Get That Mortgage
The first and biggest reason to come up with 20 percent down is that in today’s mortgage marketplace, many banks won’t give you a mortgage unless you come up with at least that much money prior to buying a house. The loan programs that once existed for 10, 5, and even zero percent down payments are far fewer now than in the past – and for good reason!

2. The Consumer Financial Protection Bureau Just Changed All The Rules!
New “Qualified Mortgage” rules were just issued by the Consumer Financial Protection Bureau. Now, homebuyers will have to meet a 43% debt-to-income ratio. That means that after you add up mortgage payments, property taxes and other debt, like revolving credit card balances, car or student loans, your total debt has to be less than $43 for every $100 in income you earn per month. Putting 20% down reduces the size of your monthly mortgage payment, making you more likely to qualify for – and afford – a mortgage.

3. A Smaller Monthly Mortgage Payment!
Who doesn’t love to pay less? I know I simply adore a smaller payment. More money down means you borrow less, which means you will have a smaller mortgage, which means you will always have a smaller, more affordable monthly mortgage payments.

4. A Lower Interest Rate = You Pay Less Over The Life Of The Loan
The interest charged on a loan with 20 percent down is often lower than the interest on a loan with less money down. Your lower interest rate will save you thousands, if not tens of thousands of dollars, over the life of the loan.

5. No private mortgage insurance (PMI)
Putting 20 percent down allows you to avoid private mortgage insurance. Also called lender’s mortgage insurance, PMI is extra insurance that lenders require from most homebuyers who obtain loans in which the down payment is less than 20 percent of the sales price or appraised value. Many lenders will even add a percentage that is much like an insurance policy onto the mortgage interest rate. Ouch!

6. Instant Equity Building
A significant down payment builds instant equity in your home. A 20 percent down payment immediately puts equity into a property when you purchase it. That down payment safeguards you if the market turns downward temporarily.

This article originally appeared on Trulia.com

I'm putting my money in this stock instead of a house
Opportunities to get wealthy from a single investment don't come around often, but they do exist, and our chief technology officer believes he's found one. In this free report, Jeremy Phillips shares the single company that he believes could transform not only your portfolio, but your entire life. To learn the identity of this stock for free and see why Jeremy is putting more than $100,000 of his own money into it, all you have to do is click here now.

Michael Corbett is Trulia's real estate and lifestyle expert. He hosts NBC's EXTRA's Mansions and Millionaires. In additional to his regular segments on ABC's The View and Fox News, he is a national best selling author with three critically acclaimed real estate books: Find It, Fix It, FLIP IT!; Ready, Set, SOLD! and Before You BUY! Follow him on Twitter @1MichaelCorbett

Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information