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 also helps you obtain favorable rates from lenders.
On the other hand, there are also financial benefits to making a small down payment—as low as 3%—rather than relinquishing so much cash up front. Even if you have the money readily available, being able to save a reserve of money for incidentals, moving expenses, and unforeseen issues will help eliminate stress after moving in and make you better prepared as a new homeowner.
The downsides of a small down payment are relatively 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% down payment. This situation will impact your home search because it will eliminate some homes from your search due to the higher listing price or asking price.
The national average for home appreciation is about 5% annually. The home appreciation rate has no relationship to your home payment. In other words, whether you put down 20% or 3%, the increase in equity is the same for your home. If you’re looking at your home as an investment, putting down a smaller amount can lead to a higher return on your investment by leaving more of your savings available 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. Feel free to contact The Chambers Realty Group, your trusted real estate professionals, at (678) 579-4020. We would love the opportunity to answer your questions and to assist you as you explore your financing options for your dream property.