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April 22, 2019 | home-buying

The Importance of 20% Down and Why Texas is Great for First-Time Homebuyers


Is homeownership one of your future goals? For many people the answer is an emphatic yes and for those that say no, there’s always the chance you’ll want a house one day as your needs change. 

No matter where homeownership falls in your long-term goals, once it’s on the list, you want to make the transition to becoming a homeowner as quickly as possible. To do that, however, you need to focus on the all-important 20 percent down for your mortgage.

Good News in Texas

While saving enough for 20 percent of a home purchase may seem like a staggering number, the market in which you are saving can greatly impact the time it takes you to do so. Fortunately for Texans looking to save this money as quickly as possible, they live in the perfect location. Research from Zillow’s RealEstate.com shows that Dallas-Fort Worth was the number two metro area in the nation for homebuyers looking to save money quickly. In Dallas you can save a 20 percent down payment in three years and five months, placing the area just behind first-place Chicago.

Austin also made the list, coming in at ninth with a time of four years, seven months. On the flip side, Portland, Oregon, was regarded as the worst place to try and save for a down payment, requiring savers to wait an average of 13 years and two months.

The Advantages of 20 Percent Down

As first-time homebuyers scramble to reach the threshold of 20 percent down, it is only natural to ask: “Why is such a figure so important?” The good news is there are plenty of reasons you’ll want to pay 20 percent down when purchasing your home. Some of these are:

Avoiding Private Mortgage Insurance (PMI). If you cannot provide a 20 percent down payment at the time of purchase, your lender will often require you to pay PMI. This provides added protection for the lender should you default on the loan but for you it means added costs to your monthly mortgage payment. A larger down payment eliminates the PMI concern.

Smaller mortgage payments. It sounds silly but it’s true. The more you pay up front, the less you’ll pay in your ongoing mortgage payments. Remember that your mortgage is more than just a sum of your remaining balance, you’ll also be paying interest on the remaining balance. The more you can pay down at the start, the less that will remain to grow your interest expenses.

Better terms, better rates. Purchasing a house is about negotiation, and the more you provide as a down payment, the better your terms in these negotiations will be. Being able to afford a 20 percent down payment will entitle you to better interest rates on the loan and better terms as well.

Better chance of approval. Your dreams of homeownership will stall very quickly if you aren’t approved for your loan, and while a loan approval can be tied to many factors, providing a sufficient down payment is integral. Save that money ahead of time and you can focus on the other details to get yourself approved.

The sooner you start saving for your dream home, the sooner you will be moving in!

Amplify Credit Union can help with your savings strategy and your mortgage.

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