Which Down Payment Strategy Is Right For You

Dated: 01/25/2018

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The Truth About Down Payments (Shhh... You don't need 20%)Image title


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 and avoid the costly Mortgage Insurance.

But there can actually be financial benefits to putting down a small down payment—as low as three percent  (For loan amounts at or under $453,100 and depending on your income, you may need to show you are a first time home buyer)—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, and in California, we've seen higher than that in some price points. 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 percent and an investment-focused, small down payment. As a Residential Realtor and Mortgage Banker, I'd love an opportunity to discuss your down payment options and help you determine what your 'happy medium' is.  We will build you a personalized Total Cost Analysis to help you feel confident you are making the best decision when it come to your financing options.

Give us a call at (949) 383-0829 or shoot us an email at Ben.Webster@LionsgateREG.com, we're happy to help.


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Ben Webster CA BRE #01927063

CA BRE #01927063....

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