The National Association of Realtors did a survey and they asked, how much do you believe you need to put down when it comes to buying a home? Shockingly, people said they would need to put 20% or more. And that is completely false. You absolutely don’t need 20% down to buy your next house. You can get a loan for 3.5% down on first-time home buyer or FHA loan, 0% on VA loan if you are a veteran. You can also get conventional loans at 3%, 5%, 10%, or 20%.
The reason I bring this up right now, as of January 2022, money’s so cheap at 3.5% for mortgages. It might make sense to get a mortgage at 3.5% and then invest the rest of your money in other things that could grow your investment portfolio for you and your family.
However, there is a benefit to putting 20% down on your next house. When you put 20% down you don’t have to pay the mortgage insurance fee. This is a fee that you will pay when you get a loan under 20% down, and it covers the lender in case you default.
To optimize your loan and your overall principle or your overall payment you want 20% down, but you should do your research and figure out if homeownership instead of renting makes more sense for you, even if you don’t have the 20% down.
For a lot of people that own their homes and they’re going to sell their homes with a lot of equity, I’m hearing a lot of people wanting to put all cash down on a house and avoid a loan altogether. And I have a question for you. Why? Is it because you’re scared that you’re going to default? Is it that you’re scared that you won’t be able to make the payment? I can tell you this, anything above 20%, meaning 30% down, 40% down, 50% down there’s no lender advantage. The only thing it does for you as a borrower is you have a lower payment.
So if you can afford the payment, think about only putting 20% down and using the rest of your money to invest in other ventures that will grow your investment portfolio. And if you are worried that you don’t have enough saved for a down payment, don’t limit your options, homeownership with 3.5% down could be a better option than renting for another 4 years while you save.
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Nick McLean Real Estate