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2018-04-12 13:14:45
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. 

OTHER PROGRAMS

There are several programs available to help you get into a home with a less-than-20% down payment.

An FHA loan is one of the easiest loans to qualify for with a low down payment. With an FHA, you can put down as little as 3.5 percent. If you're buying a home for $300,000, that's the difference between saving $60,000 for the traditional 20 percent payment, or $10,500.

If you have a history of military service, you might qualify for 100 percent financing with the help of a VA loan. This is another program designed to help you get home loans with no down payment.

Besides these well-known programs, there are tons of creative financing options out there! I work with several high-quality lenders who can structure a program to best meet your needs.

Do you have equity in your current home? I may be able to help you get into the home of your dreams BEFORE you sell your current home.

Contact me for more information 303-520-5327.

 
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