The Surprising Savvy Strategy Behind A Small Down Payment
Written by Mike Bernstein on Nov. 7th 2018
NOT ALL HOME SHOPPERS ARE CREATED EQUAL. IN MANY SCENARIOS, THE STATISTICAL EVIDENCE POINTS TOWARDS A SMALLER DOWN PAYMENT AS THE MORE FINANCIALLY ADVANTAGEOUS OPTION FOR SOME HOME BUYERS. 
          The tried and true rule that you must save for a 20-percent down payment before buying a home is certainly tried but may not be so true anymore. The conventional wisdom of coming equipped with 20 percent is still pertinent, as it shows lending institutions you have the financial discipline and stability to save for a long-term goal. Not to mention, it often will give you access to favorable rates and terms from lenders.
          So, can it really be financially prudent to put forth a small down payment—as low as three percent— even if you have the ability to part with the full 20 percent up front? Under the right circumstances, it definitely can be!
TEAM SMALL DOWN PAYMENT
          When calculating a down payment, it is important to consider future home appreciation/depreciation. The national average for home appreciation is about five percent which 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.
TEAM LARGE DOWN PAYMENT
          The downsides of a small down payment are more widely known. You’ll have to pay Private Mortgage Insurance for years, and the lower your down payment, the more you’ll pay at the beginning of the loan. You’ll also be offered an approval on a smaller purchase price than borrowers who have a 20-percent down payment, which will eliminate some homes from your search.
THE HAPPY MEDIUM
          With that being said, your home payment options aren’t binary. Most borrowers will end up residing somewhere in the middle; between the security of a traditional 20 percent down payment and an investment-focused or first-time home buyer focused small down payment. A trusted mortgage professional can provide some answers as you explore your financing options, so don't hesitate to reach out, and we will have a highly rated local lender reach out soon!
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About Author: Mike Bernstein

Mike and his team comprised of mortgage professionals who have decades of combined experience and have closed hundreds of mortgage loans across multiple states are passionately committed to this country's service members.
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