11/12/2021
"When is a lower down payment better?" This is such a tough question to answer, there are a ton of regulations about what I can talk about publicly... HOWEVER! I drank three cups of coffee and got alllll of the required regulatory pieces put into this slide set for you so you can see a version of what I send to my clients who are trying to decide how much to put down. (In this scenario, the client qualifies for all three options, swipe through to see)
Better is subjective. If you hate the idea of having a large amount of debt, a bigger down payment can help you have lower monthly payments. Between the 20% down option and the 5% down option, this scenario "saves" $419/month. The difference in cash to bring to closing (the down payment plus closing costs) is $51,585. This means that to "break even" on the extra investment, (dividing $51,585 by the $419 savings), it'll take just over 123 months or 10 years.
What are the implications of this? If this person was going to stay in the house for fewer than 10 years, I'd suggest they go with the lower down payment. If they've got other needs for the lump sum cash, keep it in their pockets. If they are on a debt free journey and buying their forever home, let's consider putting down the full 20% or more.
"But refinancing!" YES-- your house can increase in value and help you to refinance the PMI away later on. Yes, you can take out a maximum of 80% of the house's value out in a cash out refinance (house value * .8 - remaining loan balance - closing costs = maximum cash out) and putting more down gets you closer to that opportunity up front.
What would a $50k difference in cash brought to closing mean to a homebuyer in the short term? Could it be invested, put towards improvements, used to pay off other debts, used for furnishing the new house?
Alternatively, what would $400 less per month mean to a homeowner's budget? Greater flexibility, easier pivots if repairs were needed, bigger food budget, sn*******ng other debts?
This is what I mean when I say there is no "one size fits all" best mortgage strategy. If you're thinking about what would fit you best, reach out!! I'd be happy to take a look.
