When using the mortgage calculator to figure out the down payment, why not choose a loan that has the lowest down payment?

A smaller down payment is certainly a variable to consider when securing a home loan.  The first consideration is to make sure the loan qualifies with the down payment amount used in the mortgage calculator.  As long as the lower down payment still qualifies the borrower for a loan the next consideration is the cost of the loan.  Lower down payments will generally mean a higher interest rate and higher PMI rate or mortgage insurance rate.  To compare these different programs make sure you get an accurate rate quote form a mortgage company that includes the interest rate on the different down payment amounts and the rate of the PMI.  With this data you can input the parameters in the comparison mortgage calculators and find out what the payment differences will be and the cost over the life of the loan.  Weigh this against the use of the additional cash saved for the lower down payment and it will probably come down to a personal preference since the value of additional funds for an emergency or future purchases and investments is near impossible to quantify.  A smaller down payment will have higher monthly mortgage payments and greater total costs over the life of the loan, but you would not have to use as much of your money to buy the house initially.

This entry was posted on Thursday, December 11th, 2008 at 7:13 am and is filed under Mortgage FAQs. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.