When buyers in Illinois purchase a new home, they are typically required to provide their lender with a down payment. This, in addition to the purchaser’s credit score, annual income, total debt and credit history influence how much funding they qualify for.

Typically, home buyers should plan on saving approximately five to 20 percent of the sale price of their home in cash to qualify for a conventional loan, but this specific amount varies depending on the purchaser’s individual circumstances.

The advantages of putting 20 percent down

When buying property, the majority of lenders view a down payment worth 20 percent of the home’s sale price as ideal because it shows that the buyer is investing a significant amount in the home, reducing the lender’s risk in providing the buyer with a loan. One of the main benefits of putting 20 percent down on a home is that the purchaser will not have to pay private mortgage insurance. This type of insurance protects the lender from loss if the buyer were to ever default on their loan.

Additionally, buyers who make a larger down payment usually qualify for a lower interest rate than a buyer who puts down less cash on the same home, reducing the total amount they pay for their home. However, buyers should keep in mind that while a larger down payment is advantageous for these reasons, it can often take years to amass this much money to purchase a home.

Making a smaller down payment

In comparison, a down payment worth approximately five to 10 percent of the price of the buyer’s desired home will allow them to become a homeowner much faster than if they were to wait until 20 percent of the home’s sale price was acquired. Those who are interested in purchasing real estate and are considering putting less than 20 percent down on a new home should keep in mind that a smaller down payment is also associated with disadvantages. These include some of the following:

• By putting less than 20 percent down, homeowners will likely need to pay PMI to their lender
• A small down payment will make the home loan larger, resulting in higher monthly payments
• The interest rate on the loan will likely be higher than a purchaser who makes a down payment worth 20 percent

When deciding how much they should put aside for a down payment, buyers should keep in mind that this amount should depend on their income in addition to the prices of homes in their market. In this situation, buyers may also benefit from speaking with an attorney who can help them determine how much they should save before purchasing a home.