This is a common question I am asked by clients, and I would say it is a pretty good question to ask. If you watch the news, there are reports seemingly ever day which contradict each other on the topic of down payments. Some will say put at least 20% down to avoid mortgage insurance and have an easier time in underwriting. Others will say put as little down as possible, to keep cash in reserves just in case you realize a serious hardship. Still others will debate the housing market, in an effort to time it for maximum gains. Those who think we have bottomed out will tell you to put 3.5% down to get the biggest house you can, allowing you to take advantage of the appreciation we will soon see. Those who think we have yet to bottom out will tell you to put as much down as you can, to create a cushion for the next price drop.
But whatever your feelings are on the market, mortgage insurance, and reserves, these are only a portion of the consideration around how much you should put down. For instance, I recently had a client in Farmington Hills, which is in Oakland County, Michigan, who found the house of his dreams, but it was $30,000 more than he planned to spend, and he did not have the cash to put down on it to keep him at a 20% down payment. This left him with a dilemma: should he find another house or should he put less than 20% down.
For this client, the choice was simple. He put less than 20% down and paid for mortgage insurance. This was the house he wanted, it had everything he needed, and it was worth the money to him. But the key in this is that it was worth it to him. A good mortgage specialist will be able to give you insight into the pros and cons of putting more or less money down, but only you can decide if it is what you want.
If you are considering buying a house and would like some more help in deciding what a good down payment is for you, please contact me. And if you have anything to add about down payments, please leave a comment.