I was living in a small apartment when I met my husband, and he was in his very early 20s, investing in a modest three-bedroom starter home. I moved in around the time of our engagement. And after a few years of living together, we decided to upsize in our existing neighborhood. We were certain that we wanted children, and the location was ideal for his work and had a school system we were happy to continue living in.
The issue was that, at the time, there weren’t many bigger houses available, and none of them truly fit our tastes. Thus, we seized the chance to purchase a newly constructed home that would be specially designed for us.
Of course, that new home cost a lot more money than the one we were selling. We knew the property tax bill would be substantially higher as well. And so we made the decision to do what we could to keep our housing payments manageable, which involved paying down 20%50% of the price of our home as a down payment.
A down payment on a home is a big financial decision, and how much you put down will determine your interest rate, monthly payments, and overall financial situation. Although a down payment of 20% of the total amount is typically regarded as the standard, you may wonder if making a down payment of 20% of the total amount is a wiser choice.
The answer, as with most financial decisions, is “it depends.” There are both pros and cons to consider before making this big decision
The Case for a 50% Down Payment:
- Lower interest rates: A larger down payment typically translates to a lower interest rate on your mortgage. This can save you thousands of dollars over the life of your loan, freeing up money for other financial goals.
- Reduced monthly payments: With a larger down payment, you’ll have a smaller loan amount, resulting in lower monthly mortgage payments. This can ease your monthly budget and provide more financial flexibility.
- Faster equity build-up: Putting down 50% means you’ll own a larger portion of your home from the get-go. This can help you build equity faster, putting you in a stronger position to refinance or sell your home in the future.
- Avoids private mortgage insurance (PMI): If you put down less than 20%, you’ll likely have to pay PMI, which can add hundreds of dollars to your monthly payments. A 50% down payment eliminates the need for PMI, saving you money in the long run.
- Stronger financial position: Making a large down payment demonstrates financial responsibility and stability to lenders. This can be advantageous when seeking other loans or lines of credit in the future.
The Case Against a 50% Down Payment:
- Less money for other investments: Putting a large chunk of your savings into a down payment means you’ll have less money available for other investments or financial goals, such as retirement savings or college funds.
- Opportunity cost: The money you use for a large down payment could potentially earn a higher return if invested elsewhere. Consider the potential returns you might miss out on by tying up your money in a house.
- Limited flexibility: A large down payment can limit your financial flexibility in the short term. If unexpected expenses arise, you might have fewer resources available to handle them.
- Housing market volatility: The housing market can be unpredictable. If you put down a large down payment and then need to sell your home quickly, you might not recoup your full investment, especially in a declining market.
Making the Decision:
Ultimately, the decision of whether to put down 50% on a house depends on your individual circumstances and financial goals Consider the following factors:
- Your financial situation: Do you have enough savings to comfortably make a 50% down payment without sacrificing other important financial goals?
- Your risk tolerance: Are you comfortable with the potential opportunity cost of tying up a large sum of money in a house?
- Your investment goals: Do you have other investment opportunities that could potentially offer higher returns than the equity you would build in your home?
- Your housing market: Is the housing market in your area stable or volatile? How quickly do you anticipate needing to sell your home?
Alternatives to Consider:
If you’re not sure about putting down 50%, there are other options to consider:
- Make a 20% down payment and invest the rest: This allows you to benefit from a lower interest rate and avoid PMI while still investing your remaining funds for potential growth.
- Explore government-backed loan programs: These programs may offer lower down payment requirements or other benefits for eligible borrowers.
- Consider a smaller, less expensive home: This can help you reduce your overall housing costs and make a larger down payment more feasible.
The Bottom Line:
There’s no one-size-fits-all answer to the question of whether to put down 50% on a house. Carefully weigh the pros and cons, consider your individual circumstances, and explore alternative options before making this important financial decision. Remember, a 20% down payment is often a good starting point, but ultimately, the best choice is the one that aligns with your long-term financial goals and provides you with peace of mind.
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Mortgage borrowers commonly put down 20% on a home. Heres why we went higher.
I was living in a small apartment when I met my husband, and he was in his very early 20s, investing in a modest three-bedroom starter home. I moved in around the time of our engagement. And after a few years of living together, we decided to upsize in our existing neighborhood. We were certain that we wanted children, and the location was ideal for his work and had a school system we were happy to continue living in.
The issue was that, at the time, there weren’t many bigger houses available, and none of them truly fit our tastes. Thus, we seized the chance to purchase a newly constructed home that would be specially designed for us.
Of course, that new home cost a lot more money than the one we were selling. We knew the property tax bill would be substantially higher as well. And so we made the decision to do what we could to keep our housing payments manageable, which involved paying down 20%50% of the price of our home as a down payment.
Why a 50% down payment made sense for us
My husband bought our old house for very little money, and hed locked in a low mortgage rate. As such, we were used to a pretty modest mortgage payment and didnt want to triple it.
Many lenders want a 20% standard down payment, though they may accept less. And, there are specific loan products designed for people who cant put 20% down. New construction is different. Frequently, you will need to provide at least a down payment of 20% of the total amount because there are additional risks for the lender when building a home to your specifications.
Our mortgage lender wanted a 20% down payment, especially since we were purchasing new construction. But we wanted to do better.
We knew that by putting down a 20%50% down payment on our new house, we would be contributing money that we could use for other things, like savings for retirement or investments, and so on. But we also didnt want to strain our monthly budget too much. We reasoned that if we paid down 25% of the purchase price of our home, our monthly mortgage payment would be significantly lower and easier to manage. In our case, making that larger down payment would have allowed us to pay $800 less a month depending on the term of our loan and the interest rate we qualified for.
Furthermore, we were aware that the smaller the mortgage we chose, the less money we would pay in interest over the term of the loan. And that alone was motivation to pump more cash into a down payment.
Is It Better to Put a Large or Small Down Payment on a House?
FAQ
Do you get a lower interest rate if you put 50% down?
Can you get a home loan with 50% down?
Is it better to put a large down payment on a house?
Is it worth buying a house at 50?
Should I put down 50% of my home’s purchase price?
We figured our mortgage payment would be substantially less if we put down 50% of our home’s purchase price, which would make it easier to manage. In our case, based on the interest rate we qualified for and the term of our loan, we stood to pay $800 less per month by making that larger down payment.
How much should you put down on a home?
There’s no right amount to put down on a home, but there are some guidelines to consider. What you put down depends on your monthly housing budget, your loan program, your cash in reserve, your plans for the home and the market’s current conditions. The larger your down payment, the lower your monthly mortgage payment.
Should you put down a 20% down payment?
The size of your down payment doesn’t need to deter you from buying a home. The average down payment on a home is 12%, according to the National Association of Realtors. For first-time homebuyers, the average down payment is just 7%. Repeat buyers put down an average of 16%. If you can’t put down 20%, you’re in good company.
Can a first-time Home Buyer make a 50% down payment?
Of course, most home buyers won’t be in a position to make a 50% down payment — especially first-timer buyers who don’t have the proceeds from the sale of another house to use to their advantage. But I’m grateful we were able to put down the sum we did.