Down Payment Strategy - Which One Is Right For You?

Dated: 06/05/2019

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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 put 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.



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.

Your trusted real estate professional can provide some answers as you explore your financing options.

Blog author image

Tony Schwartz

I am a serial entrepreneur with 30+ years experience in sales and marketing and 28+ years as a Real Estate Broker. I love to network and help businesses make connections to find the best available pro....

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