How much money will you save with a proper down payment and not paying private mortgage insurance?

Posted on Thursday, February 19th, 2015 at 10:53am.

Many financial factors go into buying a house. You've got the price of the home, your down payment, your credit score, the current mortgage interest rate, the potential need for home mortgage insurance, tax payments, home insurance costs and more. All of these figures are calculated to determine what your monthly mortgage payment will be, and how much will go into escrow to cover insurance and taxes.

When you meet with a mortgage broker, they will provide you with charts showing how the numbers can be crunched so you can afford a home. As a buyer, you have control over two factors, and they can make all the difference in the world when trying to make a better home more affordable. These factors are your credit score and your down payment.

1. Credit score - Mortgage lenders use your credit score to determine whether you will be a risk. If your score shows that you've missed payments on your rent or utility bills, it's a sign you might not pay your mortgage. The higher the score, the lower the interest rate you'll qualify for.

2. Down payment - Most mortgage loans require some sort of a down payment now, and it's usually around 3 percent of the sale price. However, lenders will require you to pay mortgage insurance to help protect their interest because you've put such a small sum down. These payments are usually required until you've paid the principle balance down to 25 percent of the loan cost. Private mortgage insurance payments don't benefit you, the house, or your mortgage. The only good thing is that you can deduct them on your 2014 taxes, and hope that congress will continue to extend that benefit each tax year. How much you pay for private mortgage insurance can vary depending on your loan amount and down payment, but it can range from .3 percent to 1.15 percent of the loan amount, according to Bankrate.

With a better credit score and a higher down payment, you can either save money on the purchase of your new home, or better yet, be able to afford much more house. So before you decide to start looking, check your credit score and start saving for a sizable down payment.

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