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WHICH DOWN PAYMENT STRATEGY IS RIGHT FOR YOU?

You’ve most likely heard the rule - save for a 20% down payment before you buy a home. The logic behind saving 20% is solid, as it shows that you have the financial discipline and stability to save for a long-term goal. It can also help you get favorable rates from lenders. But there can actually be financial benefits to putting down a smaller down payment rather than parting with so much cash up front… even if you have the money available.

THE POTENTIAL DOWNSIDE

The potential downsides of a small down payment are pretty well known. You’ll likely have to pay Private Mortgage Insurance (PMI) for years, and the lower your down payment, the more you’ll pay. You’ll also likely be offered a lesser loan amount than borrowers who have a 20% down payment, which can eliminate some homes from your search.

THE POTENTIAL UPSIDE

The national average for home appreciation is approximately 5% depending on where you live. The appreciation is independent from your home payment, so whether you put down 20 % or 3%, 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. Your trusted real estate professional can provide some answers as you explore your financing options.