Should You Put Down a Large Down Payment?

by Ron Douglas

 

Everyone knows that buying a home is one of the biggest investments you’ll ever make. However, most people don’t evaluate it as an experienced investor would. Any successful real estate investor knows two things:

  1. Wealth is created by leveraging other people’s money as much as possible.

  2. Risk in real estate can be mitigated if you have a long time horizon and adequate cash reserves.

These two principles can also be applied to buying a house to live in.

 

I’m known online for helping home buyers find special programs that they qualify for which provide grants and other funding. In other words, I show them how to buy with no money down.

 

I often get asked the question: “wouldn’t it be better to put a large down payment on my house so that I can reduce my monthly payments?”

 

My response is always: “Yes, unless you can afford not to…”

 

Let’s look at your options in an example. The following scenarios both assume a 30 year fixed interest rate of 6% and a selling price of $200,000.

 

Assumptions - Interest rate: 6% (30 yr fixed) - Purchase Price: $200,000

 

Scenario 1: You put down 10% - Total Mortgage: $180,000 - Down Payment: $20,000 - Monthly Payment: $1,079

 

Scenario 2: You put down 0% - Total Mortgage: $200,000 - Down Payment: $0 - Monthly Payment: $1,199

 

As you can see in this example, by leveraging 100% of the bank’s money, your monthly mortgage payment is only $120 more per month.

 

Plus, you can keep your $20,000 (that you would have paid for the down payment) in the bank.

 

This means if you lose your job or get into financial trouble, you can use that money to pay your mortgage for up to 16 months ($20,000 / $1,199 = 16.86).

 

I don’t know about you, but Scenario 2 sounds like a much better deal to me.

 

In both scenarios you have to consider taxes, insurance, and maintenance expense. Also consider that some of theses expenses will be offset by the mortgage interest and property taxes being tax deductible.

 

To be clear, don’t go out and buy a house unless you can afford the monthly payments. But, if you can handle the extra $120 a month in this example, it may make more sense to keep your cash reserves.

 

Zero down was the way to go for me. However, you can’t just walk into a bank and get this type of deal. It’s only available through the special financing programs listed in the instructional guide “Free Money for First Time Homebuyers.”

 

Discover the secrets to buying your dream home with no down payment and no closing costs. I’ll show you step by step how I did it - Click Here to order now.

 

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Ron Douglas is a Licensed Real Estate Salesperson, real estate investor, and the author of "Free Money for First Time Homebuyers."  Ron specializes in helping homebuyers find grants and gift funding from federal, local, and non-profit organizations.  Subscribe to his free Real Estate Investing Newsletter and get a free report "7 Step to Getting Free Money." Go to: http://firsthomesecrets.com

 

 


 

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