You’re planning to buy a house. You’re trying to figure out your financial situation. And you’re wondering: is it better to put a large down payment on a house in Morada?
In all honesty . . . it depends. In some circumstances, a large down payment is beneficial. In other circumstances, it’s better to make a small down payment.
Looking for a little more detail on the matter? Then read on. We’re going to provide it to you below.
The Conventional Wisdom: 20% Down Payment
The conventional wisdom says that you should put 20% down on your home purchase. This offers a few different benefits, all of which we’ll review below.
Simply put, the more you put down on your home, the less interest you’ll have to pay in the long run. After all, 4% of $400,000 is quite a bit less than 4% of $500,000, especially when accrued over 15 to 30 years. By putting down 20% as opposed to, say, 10%, you could save around $35,000 of interest on a $500,000 house.
Now, this $35,000 is spread out over the course of 30 years. However, if you were to invest it in mutual funds, it could offer a substantial return on investment.
There’s also the issue of the interest rate. Generally speaking, the more you put down on the house, the lower your interest rate will be. This is because the lender sees the loan as a less risky proposition.
So, in short, paying a larger down payment can save you (and make you) quite a bit of money in the long-run. As such, if you can afford to make the larger down payment, you’re advised to do so.
No Private Mortgage Insurance
Not only will a 20% down payment save you money on interest, but it will also prevent you from having to take out private mortgage insurance. Any downpayment below 20% is forced to yield to private mortgage insurance, which is typically between 0.5% and 1% of the home’s full purchase price.
Generally speaking, private mortgage insurance will add a few hundred bucks to your monthly mortgage payment; that’s thousands of dollars a year. It’s important to note, however, that once 20% of the home has been paid off, private mortgage insurance is no longer needed. So, even if you don’t put down 20%, you won’t have to pay PMI forever.
Lower Monthly Payment
Simply put, the more you put down on your house, the lower your monthly mortgage payment will be. Depending on the price of the house, putting down 20% instead of 10% could eliminate hundreds or even thousands of dollars a month from your mortgage.
A lower monthly mortgage payment is particularly beneficial when times get hard. Say you get laid off from your job. It will be much easier to pay a monthly payment after a 20% down payment than it would be to pay the monthly payment after a 10% down payment.
Reasons to Make a Lower Down Payment
Though it’s ideal to make a larger down payment, it’s not required. And, in fact, in some cases, it might actually be wiser to make a small down payment. Some legitimate reasons to opt for a smaller down payment include:
You’re Unable to Keep Up With Appreciation
Let’s say you’re saving for a 20% down payment. You’re hoping to buy a $500,000 house. The problem you have, however, is that it’s going to take you 4 years to save up the $100,000 that you need.
By the time 4 years have passed, that $500,000 house could cost $600,000 and maybe even more. All of a sudden, you need $20,000 to $30,000 more in order to make the desired 20% down payment. In short, you can’t keep up with market appreciation.
Do you know what a better option would be? To buy a house at its lowest value possible, but with a much smaller down payment. Otherwise, you might never buy a house at all.
Most mortgages require a minimum downpayment of 3%. So, if you can save up 3%, you might just want to get out there and make a purchase now.
You’d Like to Invest Your Money Elsewhere
A home isn’t the only thing you need to put money toward. You also need to save for retirement, and for your kids’ college funds, and for a variety of other endeavors. So, if trying to save for a home in lieu of saving for those endeavors, you might want to instead just make a smaller down payment.
Yes, you’ll have to pay more interest to the home over time. However, it might actually be financially lucrative to pursue other investments instead.
Prior to buying your house, you’re advised to see a financial planner. He or she will help you set good goals so that you get the greatest return-on-investment possible.
You Want to Establish a Home for Yourself or Your Family
Maybe you have a couple of kids? Perhaps you just got married? In any case, you just want to plant your roots and be done with the housing search for good.
This is a sufficient enough reason to opt for a smaller down payment. Yes, a smaller down payment will subject you to more interest over time, but it will also give you the peace of mind of homeownership. It will give you a place that is yours; a place to use as you please.
No More Wondering “Is It Better to Put a Large Down Payment on a House in Morada”
And there it is, a detailed answer to the question of “is it better to put a large down payment on a house in Morada?”. As you can see, it’s highly dependent on your situation. Some are best served by a big down payment while others would benefit more from a lower down payment.
Need help buying a house in Stockton, California? I, Lance McHan, can help. Get the process started with the help of my home affordability calculator!