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Can A Down Payment Improve My Mortgage Approval Prospects?

Due to the plunge of the housing market, a majority of existing and potential home buyers thought that the days of low-down mortgage payments were over. But surprisingly, years down the line have proven that those with below-average credit can get a brand new home with far less than a 20% down payment.

What Is A Down Payment?

This is a type of payment that is often made in cash, paid in the early stages of a purchase of a home. The down payment represents a percentage of the full purchase of the home buying price.

While your main focus in the home buying process should be securing a loan at the lowest interest rates, saving for a down payment is just as important as buying the house itself.

However, it is not always clear how much your down payment should be. Where 20% is the standard down payment rate, you may not need that much depending on where you live.

Why Does Your Down Payment Matter?

According to renowned financial bodies like Altrua Financial, a down payment saves you from paying PMI (Private Mortgage Insurance) on a conventional mortgage loan. This is as important to the buyer as it is to the lender.

Where the down payment secures a home for the buyer, it also ensures that the lender or Mortgage Company does not face any liability. Needless to say, a bigger down payment will allow you to purchase a higher-priced home. And with enough equity in a home, the lower your risk of default will be.

Can A Down Payment Improve My Mortgage Approval Prospects?

The answer to this is both yes and no.

Even if you put up the largest down payment, but your debts are too high and your credit score is low, then the down payment may not work much in your favor. As a matter of fact, in this financial state, buying a home may not be the best move.

This goes to show that a down payment can only improve your mortgage prospect if it is coupled with a high credit score and low debt rate.

To ensure your down payment works in your favor, do the following:

  • Subtract the difference between the down payment and what you are currently paying for the house that you are living in now
  • Take the difference that you get and use it to pay your debts down to a manageable amount
  • Once you get your debts under control, put that amount into savings and boost your down payment. When you do this, your down payment will surely improve your mortgage approval prospects.

By doing these three things, you will understand what you will have to live on when you buy a house, increase your credit score and keep your spending under control.

Buying a home is one of the most important decisions that you will ever make. As such, you should ensure that you cover your financial ground in the right way. Knowing when to put up a down payment and how it can impact your approval prospects is the first step to being a happy homeowner.