Go Big: A Large Down Payment and Your Mortgage Application

Large Amount of MoneyThere are a number of ways to show a mortgage lender that you are an ideal candidate. It can be through a high credit score, little to no debt, or a steady, high-paying job. A large down payment, however, can up your chances of an approval, as it means that you know how to save (which signifies financial discipline).

Low LTV Means Higher Chances

A big down payment, for the most part, reduces your loan-to-value (LTV) ratio, which tells the amount of property you own and the amount you need to borrow. You can calculate your LTV by dividing the home loan amount to the purchase value of the house. If your LTV ratio is high, the lender may see you as a high risk, translating a higher loan cost if your application is approved.

How to Lower Your LTV

Mortgage lenders in Tempe note that you can reduce your LTV ratio with a bigger down payment. This is because a larger down decreases the amount of money you need to borrow, and it will be easier to qualify for a lower mortgage amount. Apart from increasing your chances of scoring a loan, a low LTV can also give you access to good terms, which includes low interest and smaller monthly payments.

Avoid the PMI

The ideal down payment is 20{10568cefaa40ea8a7172e0c38c686ee7c7f6e07e3b9349e76f324dc051a3c9cb} or more. This eliminates private mortgage insurance (PMI), helping you save more money. If you make a payment less than 200{10568cefaa40ea8a7172e0c38c686ee7c7f6e07e3b9349e76f324dc051a3c9cb}, you’ll need to pay PMI, which is the insurance that protects the lender in case you default on the loan. The lender may also pay the PMI (lender’s mortgage insurance), but you will need to pay a higher rate on the mortgage itself.

If you want to score better deals and save more money over the life of the loan, save first before buying a home. You can also make yourself a better candidate by checking your credit report and fixing any errors. You should also work on improving your credit score (by paying debts) and lowering your debt-to-income ratio.