If you don’t have the greatest credit record in the world, but you have a sizable down payment, many lenders will give you more serious consideration than you’d get without a substantial down payment. The bigger the down payment you make, the less your monthly mortgage payment will be. This can work in your favor in two ways:
You can lower your monthly payments and have more money to invest or to use for other purposes. You could afford a more expensive house with a bigger down payment, because you’ll be financing less of the cost of the home. If you buy a $100,000 home and make a $5,000 down payment, you have to finance $95,000. But if you make a $20,000 down payment on the same house, you’ll be financing only $80,000.
The following tables show examples of how down payments and interest rates factor into determining how much house you can afford. The interest rate isn’t a factor in how much you need to borrow to buy the house. It’s a factor in how much you’ll have to pay for borrowing the money. With interest rates currently at historical lows, individuals can afford to purchase a great deal more house than ten years ago because the monthly repayment amount is so much lower than when interest rates are higher. If your mortgage application is turned down because you don’t have enough of a down payment, you can either come up with more money or look for a less-expensive house. Hopefully, you’ve planned for your down payment and have enough money saved. If not, you’ll want to accumulate money as quickly as possible. Perhaps you could cut expenses to save more, or borrow from your 401 (k). You could consider withdrawing funds from your IRA or borrowing money from a relative. Or you may be able to find a mortgage insured by a government agency that requires no or little down payment.
