Which Down Payment Strategy is Right for You?

In this blog post Farnan Real Estate looks at the ups and downs of not starting with a 20-percent down payment when buying a home.



How much do you need for a down payment?


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.

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 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.

FIND WHAT'S RIGHT FOR YOU

Have questions regarding your mortgage and down payment options? Farnan Real Estate offers clients over 25-years of real estate and client services experience, all with the indelible backing of Patterson-Schwartz, Delaware's largest independent REALTOR® and leader in the Mid-Atlantic region, and are prepared to answer your questions, connect you with trusted partners and guide you through the tough decisions while reducing your level of stress. Contact us today to start your home buying experience.

Direct: 302.234.5215 | Office: 302.239.3000 | E-Mail: scott@farnanrealestate.com | Licensed in Delaware and Pennsylvania

Farnan Real Estate, a Patterson-Schwartz Real Estate Agent
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