• Valerie

Which Downpayment Strategy is Right For You?

Updated: Oct 18, 2019

You’ve most likely heard the rule: Save for a 20-percent 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. It also helps you get favorable rates from lenders. But there can actually be financial benefits to putting down a small down payment—as low as three percent—rather than parting with so much cash up front, even if you have the money available.


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-percent 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.


WANT TO LEARN MORE?


You might still have questions about the best way to structure your home loan. I can help! I know several qualified mortgage lenders who will be happy to discuss your options with you. Simply contact me, and I'll put you in touch with a pro I trust!


Photo credit: Sabine Peters


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©2019 by Valerie Gross with HomeSmart.