DOWN PAYMENT PREFERENCES AND HOW THEY INFLUENCE COST OF HOME
More than half of Americans say they would prefer to put 10 percent down on a home purchase rather than 15 percent, 20 percent, or 30 percent, according to mortgage banker American Financing’s 2017 Mortgages in America Survey. The 10 percent down payment option was the lowest among the choices respondents were given in the survey. It also was the most popular choice across generational divides, including millennials, Generation Xers, and baby boomers.
While affordable housing programs allowing a 10 percent down payment are available and appear to be an attractive option to prospective home buyers, it’s important to consider factors like private mortgage insurance (PMI), which can play a significant role in the overall cost of a home. In essence, the lower your down payment, the higher you can expect your private mortgage insurance costs to run (with your credit score also playing a major role).
Private mortgage insurance can add a substantial sum to your monthly costs. This is typically a few hundred dollars. So, putting down 20 percent may be more ideal for avoiding additional expenses. In that case, the bank is only taking on 80 percent of the risk, and so they will likely not require you to purchase extra insurance.