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Low Down Payment Advantages - Reasons to Make a Small Down Payment
Low Down Payment Advantages:
Reasons to Make a Small Down Payment
Reasons to Make a Small Down Payment
Generally, the larger the down payment the better. However, depending on your situation, you may find some low down payment advantages. What are these situations?
If You are a First Time Home Buyer
Pretend for a minute that you are a first time home buyer looking to save for a down payment on a $150,000 home. For a 20 percent down payment, you would need to save $30,000!
Imagine for a minute that you could manage to save $500 a month. In that case it would take you five years to save up your down payment.
What makes it even harder is that, when you finally reach your $30,000 goal, you will probably not have enough for your 20 percent down payment! Why? Because house prices generally rise - so that $150,000 home is now probably worth $160,000 or $170,000.
So, if you are a first time home buyer, it is generally to your advantage to make a low down payment and at least get into the housing market. You will gain the rewards of a house that is appreciating in value! That being said, if house prices are dropping, it is better to save for a larger down payment and delay buying a home.
As an additional note, if you are a first time home buyer, you probably do not have many home furnishings. Home furnishing can be expensive (unless you are content to practice 'sparse decoration' - such as sitting on lawn chairs rather than couches). In addition to saving for a down payment, try to save some money for home furnishings.
If You are Considering a 'Fixer-Upper'
Unless you are an amazing saver, you probably will not be able to make a down payment of 20 percent on a 'fixer-upper' - a house that needs a lot of work.
Why? Because (surprise, surprise), fixing up a home takes a lot of money!
So, while this may seem obvious, I'll say it anyways: If you are considering a fixer-upper, do not put all your available cash into your down payment.
What is the advantage of buying a fixer-upper with only a low down payment?
Well, by making a smaller down payment, you will have more money available to do the needed redecorating, reconstruction, and redesigning. As an added note of caution, do not underestimate the amount and cost of repairs needed to make the home liveable!
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