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The Down Payment: Four Great Reasons To Make The Largest Down Payment You Can Afford If you’re looking for a new home, you’ve probably heard lots of advice about down payments. About how it’s okay to just have a five percent down payment – you’ll still get approved. About how you should make the down payment as small as possible to avoid cash flow problems.

In truth, you’re actually better off making the largest down payment you can possibly afford. Even if you have to slice up other areas of your budget, save for a few more years before you buy, or take a second job on the weekends, it’ll be worth it in the end. Here are just four reasons why you should make the largest down payment possible.

You Can Avoid Useless Insurance Premiums

Although you can buy a house with as little as a five percent down payment, it’s in your best interest to make a much larger down payment if you can. Mortgage insurance premiums can be as high as one percent of the loan’s value, which means until you’ve invested 20 percent of the home’s value in equity, you’ll have to pay an extra one percent every year. If you pay at least 20 percent of the purchase price upfront, you’ll be able to avoid having to get private mortgage insurance – so you keep more of your money in your own pocket.

You’ll Pay Much Less Interest

The less you have to borrow, the less you have to pay back – for more reasons than one.

When you take out a mortgage, the interest rate applies to the principal amount that you owe – and over time, the interest can run on top of interest, quickly outpacing the original sum. Having a larger down payment means the interest applies to a smaller sum. And that means it accumulates slower and ends up being a smaller amount over time.

You’ll Have More Ammunition In A Bidding War

Offering up a larger down payment is also a great way to make sure you get your dream house, especially if it’s a popular property with multiple offers. The seller isn’t just going to consider who offers the most money – they’re also going to consider which buyer is most likely to get a mortgage. After all, failing to get a mortgage is one of the most common reasons why real estate deals fail.

If you can show that you’re able to make a larger down payment, you’ll have a better shot at getting a mortgage – and that means sellers will prioritize you over other buyers.

You’ll Get A Great Start On Building Equity

Your home equity is equal to the difference between your home’s fair market value and the amount of debt invested into the home. If you don’t have enough equity in your home and home prices in your neighborhood fall, you may find yourself in a situation where you owe more money on your home than it’s worth – a phenomenon known as negative equity. By making the largest possible down payment you can, you’ll have a great head start on building your home’s equity – which may help you profit if you decide to sell in the future.

Buying a house isn’t easy, but making the largest down payment you can afford will give you a great financial head start on home ownership. Want to learn more about how to afford the home of your dreams? Contact your local mortgage professional today for practical advice to help you maximize your down payment.

Will Missing Mortgage Payments Impact My FICO Score Yes and Heres How If you’re like most homeowners, you probably believe that one missed mortgage payment won’t have a noticeable impact on your FICO score. People get behind now and then, and besides, you’ve been faithfully making payments on time for years. How bad could it be?

In truth, even one missed mortgage payment could seriously damage your FICO score. Lenders can report missed monthly payments whenever they choose – they don’t need to wait until a certain date to do it. That means even if your mortgage payment is a few days late, your lender may report it as unpaid.

So what exactly happens to a FICO score when you miss a mortgage payment? Here’s what you need to know.

Payment History: The Single Largest Factor In Determining Your Credit Score

FICO scores are calculated based on several different criteria, the largest of them being your payment history. A full 35% of your credit score is determined by how often you pay your bills on time and in full. And although FICO says that one or two late payments aren’t going to decimate your credit score, they will shave off some points that could have made the difference between a low-risk and high-risk interest rate.

Consumers With Higher Scores Have More To Lose

A 2011 FICO study analyzed the impact of late mortgage payments on consumer credit scores. The study grouped consumers into three groups based on their starting FICO score, with Consumer A having a score of 680, Consumer B a score of 720, and Consumer C a score of 780. The findings?

Even if you have a credit score of 780, being just 30 days late on a mortgage payment can result in a 100-point drop. And it can take up to three years to earn that credit back. In contrast, a consumer with a score of 680 who is 30 days late will see only a 70 point drop and can recover their original score within 9 months.

The takeaway? Contrary to popular belief, people with high credit scores stand to lose more from a missed payment than people with low credit scores.

There Are Varying Degrees Of “Late”

One common misconception is that if you miss a mortgage payment, it doesn’t matter if it’s 30, 60, or 90 days overdue. The mainstream thinking is that late is late is late. But that’s not how FICO sees it.

Although borrowers with credit scores under 700 won’t see much of a decline after 30 days late, borrowers with a higher credit score will. If you have a credit score of 720 and you’re 30 days late on your mortgage, your score will fall to about 640. If you’re 90 days late, that score will fall again this time, to about 620.

That means if you miss a mortgage payment, you need to get in touch with your lender as soon as possible in order make repayment arrangements and hope they haven’t yet reported the overdue payment. It’s your best shot at protecting your FICO score.

Credit scores can be vulnerable to all sorts of factors, which is why if you’re looking into mortgages, you’ll want to consult an expert. A qualified mortgage professional can help you find a mortgage you can afford, so your credit will stay intact. Contact your local mortgage expert to learn more.

The Down Payment: Four Great Reasons To Make The Largest Down Payment You Can Afford

Will Missing Mortgage Payments Impact My FICO Score? Yes – and Here’s How

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