You’ve probably heard it a million times: Save up 20% for a down payment before you even think about buying a home. Sure, it’s a solid rule. It proves you’ve got the financial discipline and stability to save up for a big goal. Plus, it often gets you better rates from lenders.
But here’s the twist—putting down a smaller down payment, like as low as 3%, might actually be smarter for you financially. Even if you’ve got that 20% sitting in the bank, consider this…
The Downsides
Okay, let’s get the not-so-great stuff out of the way first. With a small down payment, you’ll need to pay Private Mortgage Insurance (PMI) for a while, and the less you put down, the more PMI you’ll have to pay. Plus, with a smaller down payment, you might not qualify for as large a loan, which could limit the number of homes you can consider.
The Upsides
Now for the good news! On average, homes appreciate about 5% annually. This appreciation happens no matter how much you put down. So, whether you plop down 20% or just 3%, your equity grows the same way. If you’re viewing your home as an investment, a smaller down payment could mean a higher return on investment. Plus, you’ll have more cash on hand for home repairs, upgrades, or other investments. And if you’re currently renting, buying with a smaller down payment means you can stop paying your landlord’s mortgage and start investing in your own future sooner.
Finding the Sweet Spot
Of course, you don’t have to go to either extreme. Many buyers find a happy medium between the traditional 20% and a smaller down payment. Your real estate professional or lender can help you figure out the best option for your situation.
So, don’t stress too much about hitting that 20% mark. Explore your options, talk to the experts, and find what works best for you!
Tere Sells Homes 