Down Payment Strategy

Dated: 12/15/2019

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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.

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Terrel D. Terrell

I'm here to provide you with the best service possible to meet all of your needs. If you are in the process of buying, selling or renting a property, my team and I can make it happen for you. We're ....

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