It may be lower than you think.
- When buying a house, you will usually have to put some money aside.
- A 20% down payment is the ideal choice when possible.
- Finance expert Dave Ramsey says 10% is the minimum you should deposit.
If you take out a mortgage to buy a home, you will almost certainly have to make a down payment. It’s a percentage of the home’s purchase price that you’ll have to pay in cash, and almost all mortgage lenders require you to put down at least some cash so you don’t borrow 100% of the home price. home.
But how much, exactly, should you deposit? Although it’s possible to get a loan with as little as 3%, it’s usually not a good idea. In fact, finance guru Dave Ramsey – and many financial experts – suggest that a much larger down payment is needed to be ready to become a homeowner.
A 20% deposit is ideal
When possible, you should deposit 20% of the cost of your home if you buy a house. As Ramsey explains on his blog, a 20% down payment saves you the unnecessary extra expense of private mortgage insurance.
Private mortgage insurance is required in most cases when putting less than 20%. This insurance is intended to protect lenders. You see, if you put down a small down payment, there’s a chance the home won’t sell enough after foreclosure to allow a lender to recoup all of its costs. Lenders want to be protected against losses, so they will make you buy PMI and pay for it as part of your monthly mortgage payment, even if this coverage does not offer you any protection.
But this is the recommended minimum down payment
Although Ramsey’s blog urges homebuyers to put down 20% down when possible to avoid PMI, the financial expert also acknowledges that you can’t always put down such a large down payment. And he doesn’t necessarily believe that having less money to put away means you should put off your homeownership plans.
In fact, Ramsey says “we recommend putting in at least 10-20%.” So he’s made it clear that he’s fine with a down payment of less than 20% – but doesn’t think it’s a good idea to go below 10%.
Ramsey urges you to deposit at least 10%, as it will save you money in the long run. “Lenders often push homebuyers (especially first-time buyers) into mortgages that require little or no down payment. The problem is, you’ll be paying thousands of dollars in interest and extra fees,” says his blog.
He also said that you should only opt for a 10% down payment “if you haven’t saved 20% after two years of intense savings.”
Taking Ramsey’s advice on this is probably a good move, as there are plenty of reasons why a 10% minimum down payment is a good idea. Sticking to this minimum threshold means you can reduce the risk of owing more than your home is worth, and you’ll also have a wider choice of loans than if you opted for an even smaller down payment.
So if you’re thinking of buying, start working to save your minimum 10% down payment as soon as possible. You’ll be glad you have the money when you have more lenders to choose from and can get a loan at a more competitive rate than would otherwise be possible.
A Historic Opportunity to Save Potentially Thousands of Dollars on Your Mortgage
Chances are interest rates won’t stay at multi-decade lows much longer. That’s why it’s crucial to act today, whether you want to refinance and lower your mortgage payments or are ready to pull the trigger on buying a new home.
Ascent’s in-house mortgage expert recommends this company find a low rate – and in fact, he’s used them himself to refi (twice!). Click here to learn more and see your rate. While this does not influence our product opinions, we do receive compensation from partners whose offers appear here. We are by your side, always. See The Ascent’s full announcer disclosure here.