How Much Downpayment Should You Put On A Home

Dated: 10/30/2017

Views: 1047

I am sure you have heard the rule, you need 20-percent down payment before you buy a home.  The theory behind that is solid and it makes sense for the long term goals.  It also helps get the best rates from lenders.

However, rather than putting so much cash up front, even if you have the money available, you can actually benefit in putting down a small down payment as low as 3.5 percent (FHA loan), if it is your first home or moving to a new home. 

The Downside:

As you might already know, you'll have to pay private mortgage insurance for years, and the lower the down payment, the more you'll pay.  You'll also be offered less of a loan amount than borrowers who have 20 percent down, which eliminates some homes from your search.

The Upside:

The average home appreciation is about five percent.  The appreciation is independent from your home payment, so whether you put down 20 or 3.5 percent, the increase in equity is the same.  If you're looking at an investment property, putting a smaller amount can lead to a higher return on the cash investment, while also leaving more of your savings free for value-add opportunities or purchase more investments.

The conclusion:

It all depends on your financial goals and planning.  Analyzing finances is always crucial to determine what is best for your current strategy.  Your trusted real estate agent will be happy to provide some answers for you.

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