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The Advantages of Paying a Small Mortgage Down Payment

Coins and paper bills with a house in the backgroundWhen obtaining a mortgage to buy one of the hottest homes for sale in Savannah, Salt Lake City, or Phoenix, paying a large down payment can be advantageous in many ways. Drhorton.com and industry experts further explain that it can help you snag the lowest interest rates possible, build home equity quick, and avoid private mortgage insurance.

However, putting a small amount of money upfront isn’t bad either. Here are some reasons many people prefer already built homes:

Short Wait for Home Ownership

Paying a significant portion of the house’s cost out of your pocket is no joke. It could take you months or years to save enough money just to cover one-fifth of the property’s price. Most Americans don’t have the luxury to do this fast without touching their emergency or retirement funds.

If you find a lender who’s willing to loan the money you need to buy your dream house with a little down payment, then better consider it. The sooner you buy your own place, the faster you can quit renting and start gaining a foothold in the real estate market.

Great Rate of Return

If you keep the size of your down payment to a minimum, you can maximize the return you can get. When you buy a property worth $400,000 that becomes $420,000 after one year with 5% appreciation, you’d experience a rate of return of nearly 167% with a 3% down ($12,000). On the contrary, you’d only get 25% rate of return with a 20% down ($80,000).

Less Risk in Case of Market Crash

The bigger down payment you pay, the more skin you’d have in the game. Using the aforementioned example, you’d absorb a small loss if your home depreciates by 20% if you put down 3% rather than 20%.

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Small and large down payments are both not without risks. For as long as you do the math thoroughly, you can find a mortgage that is enough to buy your dream home and fits your risk appetite at the same time.

 

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