If you're getting ready to purchase a house, one thing you may be debating is how much cash to use as a down payment. You can pay as much or as little as you want for a down payment on a home, with the benefits being maximized at 20% of the home's value. Is this something you should actually do? Here are some reasons to hold on to some of that money and give a smaller down payment.
You'll Have Cash For Renovations
If you plan on doing renovations after you move into the home, you are going to need the cash to do it. This could include projects as simple as painting and refinishing hardwood floors, or as big as an entire kitchen renovation and finishing the basement. These jobs can be expensive, and without the cash on hand, you'll be living in your home unable to do these jobs.
By providing a smaller down payment, you can use the cash to do the renovations that you want to do. It will likely be more expensive if you have to take out an additional loan later to pay for the renovations, so you are better off having a smaller down payment and holding onto the cash.
You'll Have Cash For Repairs
It's likely that you'll run into a lot of unexpected repairs during your first year in the home. You may discover a problem with the roof, have a major appliance break and need replacement, or have plumbing or electrical problems that require professional help. It's a good idea to have some cash on hand in an emergency fund to help pay for these problems when they come up. If you can't pay for these unexpected repairs when they are needed, you'll end up having to put the expense on a credit card where you'll pay a much higher interest rate.
You'll Have Cash For Time Away From Work
Moving into a home is a big ordeal, and it will likely involve a few days off of work to get the job done. If you hold some money back from the down payment, you can afford to take a few days off of work to take care of the move and all the unpacking. It may not seem like much, but it can give you some peace of mind that you can afford to take the time off.
Not sure how much to provide as a down payment? Ask your house buying agent for assistance.