Should You Really Put as much Money Down as you can on a Home Purchase? – Buying a Home Part 3
There are a lot of great Home Loan Programs, even some programs for Zero Down Payment Home Loans. Yes you can Buy a Home with No Money Down. Even if you do not qualify for a Zero Down Home Loan, most people can get an FHA Loan with 3.5%. There are lots of Home Loan Programs.
There are lots of Home Buyers that can afford to pay cash for a home; and many that can put down a traditional 20% or more on a Home Loan.
But should you put as much money down as you can? If you can pay cash should you? Or is there a better way to do it? Keep in mind that in general if you put less than 20% down you will have a slightly higher loan rate or mortgage insurance that will make the cost of the loan a little higher. Here are some things to consider when deciding how much money to put down (of even get a loan):
Can you afford the higher monthly payment when you put less down.
If you put all (or a good hunk) of your money into the down payment do you have a reserve left in the event of job loss or disability that might keep you from working; so you can pay your mortgage. Do you have a reserve left for other expenses.
Right now borrowing money is cheap. If you borrow (or borrow more than you have to) can you make more money by investing what you do not use for the down payment. This is especially true when you consider that the mortgage interest is something you can right off on your taxes.
The more money you put down the easier and quicker your loan will be processed (in general).
When you submit an offer on a home, the more money you are coming in with a down payment (or better yet – All Cash) makes your offer look more attractive to the sellers as you look like a more solid buyer.
This last reason for putting down a small down payment is kind of twisted, but sadly practical. I doubt we are going to have any down turn in the market soon, and I really doubt it will be like the one we just came through if it does come; but the less you put down the less you loose. Yep if you are upside down on your home and have to walk away (or loose to foreclosure) the less down payment you put into it the less you loose.
Now every client is different. Every persons situation is different. However, in general, if you have the money and will still have a good reserve, I recommend going with 20% down. No more and no less, for the reasons above. Now if you do not need a Tax Deduction and want a paid for home or low mortgage due to your situation go ahead and put more down or pay cash. If you can put more down or pay cash, but don't have to, maybe you should leverage your money and buy an investment property in addition to your primary residence.
For those of you that cannot afford to put 20% down (or would have to clean out the piggy bank to do so). Buy with as little money out of pocket as possible. Save your cash.
Yes it is risky to buy a home without a big cash reserve, but it is riskier not to buy a home. Does a home loan cost more without a big down payment? Yes it does, but it will probably cost you more to wait? Read this blog post I wrote some time ago on the Advantages of Home Ownership. If you should ever run into financial Hardship you are probably better off in your own home than a rented property.
Talk to a lender and Realtor about the loan programs available to you and the current housing market and then make the best decision for you.
Let Home Point Real Estate Point you in the right direction. Located in Brentwood Ca Home Point Real Estate provides service to the East Contra Costa County Communities of Brentwood, Oakley, Discovery Bay, Antioch, Pittsburg and beyond. Give us call at 925-260-4321 about Buying a Home, Selling a Home, or Real Estate Investing.
Originally Published at HomePointBrentwood.com.
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By Gene Riemenschneider
Broker and Owner
Home Point Real Estate - 925-260-4321 - Turning Houses into Homes
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