Down payments are a very important part of obtaining mortgage financing. The size of your down payment is one of the biggest factors in calculating what you may qualify for when purchasing a new home.
WHY DOES IT MATTER?
First of all, the size of your down payment in relation to the price of the home will determine the size of your mortgage. The bigger the down payment the smaller the mortgage, and the smaller your monthly payments will be. So if you are on the cusp of qualifying for a certain property, adding a bit of extra cash to your down payment may allow you to qualify for a mortgage that gets you your dream home. All purchases made with a down payment of less than 20% of the total value of the home will be subject to a mortgage insurance premium that is added to the total loan amount. Even though there is an insurance premium on these types of mortgages, putting down less than 20% is the only option for many first time home buyers.