Many first-time homebuyers stress over the amount of time it takes to save a down payment for a home, especially in a hot real estate market, like this one. Alternatives are available to get you into your dream home with a lower upfront amount. If you wish to consider a home purchase with less than 20 percent down, don’t forget to weigh the following factors before signing on the dotted line.


Homebuyers with less than 20 percent down must purchase private mortgage insurance, also known as PMI. This additional cost will be added into your monthly housing payment along with your mortgage payment and real estate taxes. Your credit score is factored in to PMI premiums, so if you have a solid credit history, it may be more cost-effective for you to pay PMI instead of waiting to save a larger initial amount.

Rising interest rates

If you expect interest rates to rise, consider accelerating your home purchase and moving forward with a lower down payment. Bankrate’s online mortgage calculator can demonstrate the effects of delaying a home purchase while saving a larger amount to put down in a rising interest rate environment. Many people are locking in rates before expected rises in the near future. For an accurate up to the minute assessment of mortgage products and current interest rates available go to preferred lender and two other mortgage providers for a comparison.

Loan-to-value ratio

The loan-to-value ratio is the percentage of your mortgage loan compared to the appraised value of your property. Assuming your purchase price is close to the appraised value, when you put 20 percent down, your loan-to-value equals 80 percent. If your loan-to-value ratio is above a certain threshold, your mortgage loan may be viewed as high-risk. Lenders may charge you a higher interest rate.

Competitive bidding situations

In the hot Atlanta real estate market, competitive bid situations will arise. If you find yourself in the midst of a bidding war, one key advantage is to offer the largest down payment you can muster. A 20 percent down payment demonstrates financial stability and can swing the odds in your favor. Your real estate agent will assist you with formulating a bid and will advise you on how much you need to put down to be successful.

Presenting an upfront payment of 20 percent or more indicates to real estate agents, mortgage lenders and sellers that you are a serious buyer. However, as interest rates change and the busy spring and summer buying season approaches, you may want to consider other options. The current interest rates and the cost of PMI are factors to weigh when you decide what type of down payment works for you.

There are also buyer cash bonuses that agents are now providing to buyers to assist in their purchases after the homes is bought. Many of these agents’ assistance Free Expert Buyer Representation is invaluable and offered at no charge to the buyer.

Image source: Flickr