What Are the Benefits of a 20% Down Payment?

Appfolio Websites • March 5, 2021

What Are the Benefits of a 20% Down Payment?



If you’re thinking of buying a home this year, you may be wondering how much money you need to come up with for your down payment. Many people may think it’s 20% of the loan to secure a mortgage. While there are plenty of lower down payment options available for qualified buyers who don’t want to put 20% down, it’s important to understand how a larger down payment can have great benefits too.

The truth is, there are many programs available that allow you to put down as little as 3.5%, which can be a huge benefit to those who want to purchase a home sooner rather than later. Those who have served our country may also qualify for a Veterans Affairs Home Loan (VA) and may not need a down payment. These programs have really cut down the savings time for many potential buyers, enabling them to start building family wealth sooner.

Here are four reasons why putting 20% down is a good plan if you can afford it.

1. Your interest rate may be lower.

A 20% down payment vs. a 3-5% down payment shows your lender you’re more financially stable and not a large credit risk. The more confident your lender is in your credit score and your ability to pay your loan, the lower the mortgage interest rate they’ll likely be willing to give you.

2. You’ll end up paying less for your home.

The larger your down payment, the smaller your loan amount will be for your mortgage. If you’re able to pay 20% of the cost of your new home at the start of the transaction, you’ll only pay interest on the remaining 80%. If you put down 5%, the additional 15% will be added to your loan and will accrue interest over time. This will end up costing you more over the lifetime of your home loan.

3. Your offer will stand out in a competitive market.

In a market where many buyers are competing for the same home, sellers like to see offers come in with 20% or larger down payments. The seller gains the same confidence as the lender in this scenario. You are seen as a stronger buyer with financing that’s more likely to be approved. Therefore, the deal will be more likely to go through.

4. You won’t have to pay Private Mortgage Insurance (PMI)

What is PMI? According to Freddie Mac:

“PMI is an insurance policy that protects the lender if you are unable to pay your mortgage. It's a monthly fee, rolled into your mortgage payment, that is required for all conforming, conventional loans that have down payments less than 20%. Once you've built equity of 20% in your home, you can cancel your PMI and remove that expense from your mortgage payment.”

As mentioned earlier, when you put down less than 20% when buying a home, your lender will see your loan as having more risk. PMI helps them recover their investment in you if you’re unable to pay your loan. This insurance isn’t required if you’re able to put down 20% or more.

Many times, home sellers looking to move up to a larger or more expensive home are able to take the equity they earn from the sale of their house to put down 20% on their next home. With the equity homeowners have today, it creates a great opportunity to put those savings toward a 20% or greater down payment on a new home.

If you’re looking to buy your first home, you’ll want to consider the benefits of 20% down versus a smaller down payment option.

Bottom Line

If you’re thinking of buying a home and are already saving for your down payment, let’s connect to discuss what fits best with your long-term plans.


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Home Projects That Boost Value

By KCM • June 14, 2025
Home Projects That Boost Value Whether you’re planning to move soon or not, it’s smart to be strategic about which home projects you take on. Your time, energy, and money matter – and not all upgrades offer the payoff you might expect. As U.S. News Real Estate explains: ". . . not every home renovation project will increase the resale value of a home. Before you invest in a swimming pool or new addition, you should consider whether the project will pay itself off by getting prospective buyers in the door when it’s time to sell. " That’s why, before you pick up a power tool or call a contractor, your first step should be talking to a local agent. Planning Ahead Pays Off If you plan to move relatively soon, you’ll want to get a jump start on your to-do list. And even if moving isn’t on your radar yet, life can change quickly – and a new job, a growing family, or shifting priorities can fast-track your plans. You don’t want to be scrambling to fix up your home if your timeline changes. Smart updates now = fewer headaches later. By planning ahead, you can spread out the work over time, which is easier on your wallet and your stress levels. Plus, you’ll get to enjoy the upgrades while you’re still living there and have the peace of mind your house is ready to impress when it's time to list. What Buyers Want (and What’s Actually Worth Doing) If you’re not sure which projects are worth your time and money – here's some information that can help. A study from the National Association of Realtors (NAR) shows which upgrades typically offer the best return on your investment (ROI) (see graph below): If an update you're already thinking about overlaps with those high-ROI upgrades, great. Odds are it'll improve your quality of life now and your home’s value later. But don’t take this list as law. This is based on national data and is the sort of thing that's going to vary based on what’s most sought-after where you live. That’s where your agent comes in. As an article from Ramsey Solutions says: “ The best way to gauge what you can expect in terms of resale value on home improvements—especially if you’re planning to sell soon—is to talk to a real estate agent who is an expert in your market. They’re sure to know the local trends, and they can show you how other homes with the features you want to add are selling. That way, you can make an educated decision before you start ordering lumber and knocking down walls.” You'll just want to make sure you don't overdo it. Too many high-end updates can make your home the priciest in the neighborhood. That might sound great, but it can actually turn buyers away if it's outside their expected price range for the area. The right agent will help you make smart updates that buyers will love, without going overboard. Whether the project is big or small, it pays to be strategic. And an agent is a key piece of that strategy. Bottom Line It doesn’t matter whether you plan to move soon or not, it can still pay off to make strategic updates that’ll help you love your home now and stand out later. What’s one upgrade you’ve been thinking about – and wondering if it’s worth it? Let’s make sure it’ll pay off when the time comes.

Why You’ll Want a Home Inspection

By KCM • June 13, 2025
Once your offer is accepted, an inspector will assess the condition of the house, including things like the roof, foundation, plumbing, and more. That information is incredibly important and paves the way for you to re-negotiate with the seller, as needed. So, you don’t want to skip this step. An inspection is your chance to avoid costly headaches and get peace of mind. Let’s connect to talk about other ways to make your offer stand out.

Housing Market Forecasts for the Second Half of the Year

By KCM • June 12, 2025
Housing Market Forecasts for the Second Half of the Year From rising home prices to mortgage rate swings, the housing market has left a lot of people wondering what’s next – and whether now is really the right time to move. There is one place you can turn to for answers you want the most. And that’s the experts. Leading housing experts are starting to release their projections for the rest of the year. These insights will give you clarity – and a little more optimism than you might expect. Business Insider sums up the forecasts (and why they’re good news for you): “As mortgage rates go down this year, affordability may improve slightly for homebuyers. Inventory is also expected to grow, which should help moderate price growth and make finding a home easier.” Let’s break it down. 1. Mortgage Rates Should Come Down (Slightly) While a major drop isn’t on the table, forecasters are calling for a modest decline in rates in the months ahead as the economic outlook becomes more certain. Based on the information we have right now, here’s a look at where they say rates should be by year-end (see graph below): Even this slight decrease is a welcome change. A seemingly small decline can still help bring down your future mortgage payment and give you a bit more breathing room in your budget. Just remember, everything from inflation to employment and broader economic shifts will have an impact on where rates go from here. So, don’t try to time the market. And do expect some volatility along the way. 2. Inventory Will Continue To Grow Inventory has already improved a lot this year. A big portion of the growth the market has already seen is because homeowners are getting tired of sitting on the sidelines. They’ve tried the wait and see approach with rates, and it hasn’t really paid off. And at a certain point, you need to move no matter what the market is doing. This is one reason more homes have been listed lately. And experts say that should continue. As Lance Lambert, Co-founder of ResiClub, says: “The fact that inventory is rising year-over-year . . . strongly suggests that national active housing inventory for sale is likely to end the year higher. ” If rate forecasts pan out as the experts say, that could be enough to tip some more sellers off the fence and back into the market – giving you even more options for your move. 3. Home Prices Are Moderating As more homes hit the market, there will also be less upward pressure on home prices . Expert forecasts are still calling for growth, but the pace of that growth is slowing down as inventory climbs. The average of all 7 forecasts shows prices will rise about 2% this year (see graph below): That means you could finally get a little bit of relief from rapidly rising home prices . When you combine the forecast for healthier price growth with projections for slightly lower mortgage rates, that could mean more buying power in the months ahead. Keep in mind, though, the housing market is hyper-local. So, this is going to vary by area. Some markets will see prices climbing higher. And some may even see prices dip a little if inventory is up significantly in that location. So, lean on a local agent for insights into what’s happening in your area. Bottom Line So, if you want or need to move this year, know that the experts say things should start looking up. Let’s connect so you can take advantage of any market shifts that work in your favor.
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