WHICH DOWN PAYMENT STRATEGY IS RIGHT FOR YOU?

Dated: January 14 2021

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WHICH DOWN PAYMENT STRATEGY IS RIGHT FOR YOU?

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.

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

Alicia Nelson

My name is Alicia, and I am a Real Estate Agent in the Ruskin, FL area. What I am most, is someone who loves cultivating friendships, and helping others, both in business and in life. I come from a....

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