The Benefits of Making a Large Down Payment on a Home Loan

Homeownership is undoubtedly a basic human right, but actually owning a home after years of renting can be a huge economic challenge. It requires you to pay for a relatively high down payment, for example, alongside monthly amortizations whose actual amount would also depend on the down payment you will make once you apply for a housing loan via bank financing.

Having said that, saving up sufficiently on your down payment is extremely essential in not only getting pre-approved for your home loan but also in reducing your future monthly mortgage payments. Here, we'll discuss the benefits of making a larger down payment and why you should apply this tactic for your future house and lot purchase.

What is a Home Loan and Down Payment?

A housing loan is an agreement between a qualified borrower and a lender for the purchase or acquisition of a real estate property. The latter provides the money necessary to complete a house and lot purchase, while the former agrees to pay the lender in an installment basis with interest until all payments are settled within an agreed-upon time frame.

A down payment, meanwhile, is the amount that a home loan borrower pays out-of-pocket before a home loan is calculated and granted. Simply put, it's the amount that the buyer pays upfront, which is a percentage of the home's purchase price. Sellers and developers would typically set a minimum down payment from 10 to 30 percent of the property's total contract price.

Benefits of Making a Large Down Payment Amount on a House Loan

If you want to know more about the advantages of providing a larger down payment amount for your future house and lot in the Philippines, these benefits are as follows:

Loan approval is almost guaranteeable

The almost 100-percent guarantee that your loan application will be approved is by offering a much higher down payment. This gives your lender the impression that you, indeed, has the necessary financial capacity to pay off your loans in time, and that the chances of you missing a payment deadline is very slim.

Mortgage lenders may grant a higher loanable amount

Putting forward an amount that's way beyond just the minimum down payment required can also help you avail of a higher loanable amount if you need to. For example, you prefer a two-storey residential property with more quality house features. In that case, your chances of being approved for a more expensive property is high if you offer bigger down payments. This is the opposite if you offer a lower down payment amount. In fact, you would even need more proof of your repayment capabilities. In the US, for instance, borrowers are required to pay mortgage insurance if they pay less than 20 percent of the property's total purchase price.

Interest rates will be reduced

One of the most financially rewarding benefits of making a larger down payment is a lower loan-to-value ratio and therefore a much lower interest rate. With a lower down payment, it incurs a higher interest rate or, worse, a downright rejection of a housing loan application. So if you want to save more money and guarantee home loan approval, work on being able to offer a bigger down payment than just fulfilling the minimum necessary.

It results in lower monthly payments and shorter loan terms

Aside from significantly lower interest rates, your monthly mortgage payments and loan term would also be positively affected. That is, the total loan amount you'd need to pay will be reduced and with a shorter loan term depending on your repayment strategy.

Tips to Save More Money for Your Property Down Payment Fund

If you intend to pay a bigger down payment amount to reap its benefits, here are two deceptively simple and major tips to motivate you to save more money for your property down payment fund:

Start saving as soon as possible

The first step to working on a long-term goal is sometimes the hardest part. But nonetheless, start saving as soon as you can.

Start off by calculating your monthly expenses, divide them into different categories, and consider saving all of what remained after all's been accounted for. You may also ponder upon following the popular 50-30-20 rule, wherein 50 percent goes to expenses, 30 percent to wants/guilty pleasures, and 20 percent to savings. Note that you must also be able to distinguish your needs from mere wants in order to come up with an effective budgeting plan and strategy.

Increase your savings amount without sacrificing your other financial obligations

In the 50-30-20 financial hack, savings get the least allocation. However, you can increase your savings amount without necessarily compromising your other financial obligations, including your emergency fund. For example, 50 percent will remain allocated to your needs and expenses, whereas you may consider deducting a small percentage from the 30 percent allocation for your wants and make it an even 25-25. This is just one money-saving hack that you can apply to attain your desired down payment amount sooner rather than later.

To sum, offering a higher down payment allows you to save more money by lowering your interest rates, potentially shortening your loan term, and reducing your total loan amount. This is a financially rewarding experience, but proves to be challenging especially for those who are overcome by financial obligations that restrict them from fully realizing their dream of having their own house and lot Philippines.

At Lumina Homes, you can definitely achieve a residential property without spending more than you could and should. Our housing brand specializes in providing affordable house and lot for sale among Filipino families who aspire of having their own home without shelling out all their life savings. Providing a higher down payment doubtless helps a lot, but those who can provide only the minimum necessary will not be ignored or least prioritized.

Got some investment questions or inquiries on how you can get better chances of approval? Feel free to refer to our blogs for free and expert advice. You can also directly message us for your unique concerns and payment assistance. We'll be more than willing to accommodate and help you secure a quality yet affordable house and lot in a conveniently located community in the province of your choice!