Why is it important for Lindsey to save at least a 10% down payment when purchasing a home?

• A. A 10% down payment reduces the loan amount, potentially lowering monthly payments and interest costs.
• B. A 10% down payment guarantees approval for any mortgage regardless of credit score.
• C. A 10% down payment allows Lindsey to avoid all property taxes.
• D. A 10% down payment eliminates the need for any closing costs.

Answer: (A)

Verified step by step guidance

1. Understand the concept of a down payment: A down payment is an upfront payment made when purchasing an asset, such as a home. It is typically expressed as a percentage of the total purchase price.
2. Recognize the financial benefits of a down payment: A larger down payment reduces the loan amount Lindsey needs to borrow, which can lower monthly payments and reduce the total interest paid over the life of the loan.
3. Clarify misconceptions: A 10% down payment does not guarantee mortgage approval regardless of credit score, nor does it eliminate property taxes or closing costs. These are separate financial considerations.
4. Evaluate the impact on mortgage terms: A higher down payment may also help Lindsey qualify for better loan terms, such as a lower interest rate, and potentially avoid private mortgage insurance (PMI), which is often required for down payments less than 20%.
5. Summarize the importance: Saving at least a 10% down payment is a prudent financial strategy that can make homeownership more affordable and sustainable by reducing borrowing costs and improving loan terms.