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What to consider when making a low down payment.

The amount of money you choose to put down on your home is a personal decision that relies on a variety of factors. At first glance, putting a minimal amount of money down on your home may seem like a great idea. You get to save money and may be able to move into a new home sooner. Under certain loan options, a low down payment strategy could be the right choice for you and allow you to save money for other expenses. In other cases, however, it may cause you to pay more in the long-term.

Some programs allow you to make a low down payment without risk. For example, military veterans and active-duty service members who qualify for VA loans have the option to purchase a home with no money down, receiving 100% financing and lower interest rates. If you are considering putting down less than 20% of your home’s cost, we encourage you to speak with one of our Mortgage Consultants to ensure you are making the best possible financial decision.

Benefits of low down payments:

SAVE MONEY UPFRONT

Putting down a payment of 20% or higher can take a huge chunk out of your savings account if you haven’t been able to put away large sums of money. That means that you would have less money available to you for unexpected costs such as home repairs or medical bills, and to put towards other financial goals such as building a child’s college fund. It could be a safer choice to keep more money in the bank for emergencies and other interests by making a lower down payment.

BUY A HOME SOONER

Choosing to put down less money upfront may mean you can start looking for a home sooner, as you won’t need to wait until you have more money saved up. The ability to purchase a home with a low down payment means more people can buy and therefore more people can sell, helping the real estate market to thrive. Therefore, if you have a good credit score and financial history, you could still be approved for a favorable home loan even if you decide to put less money down, meaning you can move into a new home faster.

Drawbacks of low down payments:

DECREASED EQUITY

Your total home equity consists of the money you owe subtracted from your home’s value. If you provide a lower down payment, it will take longer for you to pay off your mortgage, meaning you’ll have decreased equity, especially if property values in your area decline. Lower equity could also make it harder for you to sell your home in the future.

HIGHER MORTGAGE PAYMENTS

Of course, the less money you put down, the higher your home loan will be, meaning the more money you’ll be putting toward mortgage payments each month. However, it’s not just the principal cost that will increase. Lower down payments usually mean higher interest rates since the lender will consider the loan to be riskier. In addition, if your down payment is less than 20%, you will have to pay private mortgage insurance (PMI).

REQUEST A HOME LOAN QUOTE

We can help you make the right decision.

Our team will work with you to determine what types of loans you qualify for and how much money you can afford to put down. Contact us today to get started, or use our website to request a quote.

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