Most people are not in a financial position to purchase a house entirely on their own and will need to take out a mortgage, which is usually paid back over 30 years. To approve the loan, most lenders require buyers to put down some of their own money on the house. The average down payment can vary, but tends to be a minimum of 10 per cent.
Average Down Payment
The down payment amount you pay on a house will depend on the value of the home you want to purchase. The more your home is worth, the more you'll need to put down. The average down payment for a home, as a percentage, is about 10 per cent, according to the Mortgage QnA website.
Average Versus Ideal Downpayment
The average down payment on homes may be 10 per cent, but this is not what many lenders consider ideal, according to the Consumer Credit Repair and Michael Bluejay websites. An ideal down payment is around 20 per cent. As a result, buyers are putting down only half of the recommended amount and are borrowing more than lenders would prefer.
Effects of the Average
When you put down at least 20 per cent on a home, your lender will consider you less of a liability than if you put down 10 per cent. Otherwise, you must take out a larger mortgage to cover the other 10 per cent, and you may end up with a higher interest rate and higher monthly payments. If you can't afford to put down more than 10 per cent and you have to accept high monthly payments, you may have a harder time meeting your loan term. The lender knows this.
Of course, the bank will evaluate your current income situation to determine whether you'll be able to meet the higher monthly payments despite your lower down payment. Banks understand that people may have excellent income and credit but may not have had time to put aside sufficient savings for a 20 per cent down payment.
If you do not have enough savings to meet the recommended 20 per cent, you may be able to convince your lender that 10 per cent is sufficient by demonstrating an excellent credit score. This should show the lender that you have been consistent with paying previous debts.
One reason the average down payment no longer corresponds to the ideal down payment is that economic conditions as of 2010 prevent many homebuyers from putting down that amount of money. Consequently, it may no longer be realistic to put down 20 per cent.