20% Down Payment
You’ve most likely heard the rule: Save for a 20% down payment before you buy a home. The logic behind saving 20 percent is solid, as it shows that you have the financial discipline and stability to save for a long-term goal. In addition, it helps you get favorable rates from lenders. However, there can actually be financial benefits from a smaller down payment—as low as three percent—rather than parting with so much cash up front. Even if you do have the money available. Let’s see why!
THE DOWNSIDE
The downsides of a small down payment are pretty well known. You’ll have to pay Private Mortgage Insurance for years, and the lower your down payment, the more you’ll pay. You’ll also be offered a lesser loan amount than borrowers who have a 20% down payment, which will eliminate some homes from your search.
THE UPSIDE
The national average for home appreciation is about five percent. The appreciation is independent from your home payment, so whether you put down 20 percent or three percent, the increase in equity is the same. If you’re looking at your home as an investment, putting down a smaller amount can lead to a higher return on investment, while also leaving more of your savings free for home repairs, upgrades, or other investment opportunities.
THE HAPPY MEDIUM
Of course, your home payment options aren’t binary. Most borrowers can find some common ground between the security of a traditional 20% and an investment-focused, small down payment. A trusted real estate professional like myself can provide some answers as you explore your financing options. Contact me and I will help you finance the perfect home!
