This Is One Rule I Won't Break When Getting a New Mortgage

I will soon be applying for a new mortgage loan. I'm going to be buying a new house and taking out the right loan will help me get the property I want at a price I'm comfortable with.

As I look into mortgage lenders and explore my options, there's one rule I absolutely will not break when getting a home loan. Here's what it is. 

This rule is non-negotiable for me

The rule that I absolutely will follow when purchasing a home has to do with the size of my down payment. Specifically, I will not buy a house unless I have the money to make a 20% down payment.

Many buyers don't follow this rule. In fact, making a smaller down payment is very common -- especially among first-time buyers. And lenders will allow you to put down as little as 3% in many cases. But, despite the fact that I could buy a house with less than 20% down, I won't do it. 

I will only buy a house when I have a 20% down payment

There are a few reasons why I won't buy with less down. First and foremost, I don't want to ever worry about being trapped in a house because I'm unable to afford to sell it for enough to repay my entire home loan.  

I know there are many transaction costs associated with selling a property, including paying commissions to real estate agents. Commissions alone can cost tens of thousands of dollars. I also know that property values can sometimes decline and it takes a long time for a mortgage balance to go down when you first start making payments on a loan, because most of the money goes toward interest at first.

I don't want to stress about whether there's a chance I'd have to sell and need to come up with money to avoid a short sale. By putting 20% down, I am confident that, barring disaster, I'd be able to generate enough from a home sale to pay off all that I owe. 

I also want to avoid private mortgage insurance. PMI is insurance lenders require with a down payment below 20%. Although I would have to pay for it, its only purpose is to protect lenders in case of foreclosure. I don't want to add hundreds of dollars to my mortgage payment just to pay for insurance to benefit a lender.

Finally, I know I can get approved for a loan from more mortgage lenders, and at more competitive interest rates, if I have 20% to put down on a home. Lenders will give me a better deal since they're taking less risk if I have more equity in the house due to my larger down payment.

For all of these reasons, I don't consider a home affordable if I would have to put down less than 20% to buy it. I'd rather wait to save more, or purchase a smaller property, in order to get better mortgage rates and have the peace of mind of knowing that my home won't get me into financial trouble.