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Cash on Hand is a Better Measure
Research by the JPMorgan Chase Institute states that having a cash cushion trumps a big down payment. Historically speaking, a big down payment is related to lower risk, but the report suggests that liquidity of having at least three months of mortgage payments is best for successful homeownership. Whereas, borrowers with less than one month reserve a rate five times higher than borrowers who have three months of mortgage payments available.
What about Interest Rates?
Most homebuyers have an incentive of securing a lower interest rate and make a larger down payment. But, is this right for the long-term? The straightforward answer is no. Don’t try to make a big down payment at any cost. Some reports suggest that borrowers with little liquidity but more equity experienced higher rates than borrowers with more liquidity but less equity.
Be Prepared for Your Homeownership Success
It has been found that a program encouraging borrowers to make a slightly smaller down payment and spend the residual money to fund an “emergency mortgage reserve” account can result in lower default rates. Today, there are several down payment assistance programs available that can help you do just that. Also, you can consider combining an affordable first mortgage with a down payment assistance program, which will help you come close to the table without wiping out your bank account.
When it comes to down payments, there is a big gap between perception and reality. While considering that saving for a down payment is the biggest challenge for new buyers, it’s probably the right time to brush up on your facts.
A Fannie Mae consumer survey reveals a few changes in consumer knowledge from 2015 to 2018. Most homebuyers don’t know what does a down payment requires and only 23% are aware of low down payment programs.
Consider asking your lender and real estate agent about low-down payment programs. Ask them about down payment assistance in your region. Do your homework before shopping for a mortgage and selling a house in WA. To sell house fast Washington, talk to Isatou Properties today.