How Do You Know How Much to Put Down On A Home?
For many prospective home buyers, the down payment is the most daunting part in the race to buy a home. The big question for all prospective buyers is: how much should my down payment be? Most lenders will tell you that 20 percent is the standard, but is that really necessary?
The short answer is no, but of course there are some caveats.
When to make a substantial down payment:
- When you’re looking to keep your monthly payment as low as possible and have the cash to spare
- When you’re approaching retirement age and can envision a reverse mortgage sometime down the line.
- When the interest rate is lower with a higher down payment. “The more you put down, the better position you are in for negotiating a lower interest rate,” says Credit.com.
- If you’re worried about being underwater. If the market should drop in your area, you run the risk of owing more than your home is worth.
When to go low:
- When you don’t have the funds for a higher down payment and can’t earn or borrow them quickly enough.
- When the rate on your FHA or Fannie or Freddie loan is comparable to that you’d get with a higher down payment.
- When you need to escape a high-rent situation and the monthly payment on a house is lower than what you’re currently paying, even with the PMI factored in.
- When you’re confident your home will appreciate quickly, allowing you to refinance and get rid of PMI quickly.