Reduce Your Monthly Payments

Q. Yvonne, my friend told me that he wished he had put more down on his house so he wouldn't have to pay as much in taxes. Do you think I'm putting down enough to lower my taxes when I buy?

A. I'm excited that we're going to find your first home together! I know when you start looking for a house everyone has an opinion and advice about what you should do - and that gets confusing sometimes. 

I assume what your friend is talking about is undoubtedly Mortgage Insurance not Property Taxes. The amount of your down payment does not effect the amount of your taxes. That is based on the purchase price.

When banks loan you money they are taking a risk. Naturally, they want to keep their risk as low as possible. They typically will risk 80% of the value of your new home. For example, if the price of your new home is $200,000 the bank is willing to risk $160,000. The other 20% ($40,000 in this case) is a much higher risk for them.

That's why there has been a lot of discussion whether banks should require all buyers to put down 20%. The way lenders have gotten around this challenge is to charge a higher rate of interest for the 20% or require the buyers to pay Mortgage Insurance for that portion of the loan. This "solution" can raise your monthly payments.

The bottom line is this... the more you "put down" on your new home, the less money you pay every month. Ask your lender for different scenarios if you were make different down payments.