How Large Should My Down Payment Be?

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Identifying Real Estate Risks After having a difficult time financially for quite some time, I realized that part of my problem was my personal housing costs. I really began evaluating what I wanted out of a home, and I realized that I needed to shop for a place that would work better for what I needed. I started paying more and more attention to real estate risks, and it occurred to me that I hadn't invested in a smart property. After talking with my real estate agent, I started focusing on changing my ways, and it was incredible to see how much brighter my future became.

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When looking at homes for sale, you might find that coming up with the money for a down payment is one of the most challenging barriers. It's typical to make a down payment of 20 percent of the purchase price of the house, but there are other options available besides making a down payment of this size. You could make a larger or smaller down payment if you wish, as long as you approach the decision while fully informed.

Pros and Cons of a Down Payment

The more money you put down, the less you will be borrowing. This may be better for you financially in the long run since you'll be paying less interest. However, if you make a smaller down payment, you'll have more money in savings. This may be preferable if you are concerned about short-term emergencies and if you have something better you could use your money for, such as paying college tuition or making a great investment. If you have other debts to pay off, you may want to make a smaller down payment so you can devote more funds to paying off these debts.

Making a Low Down Payment

Some lenders only require that you pay as little as 3.5 percent down. If you are able to obtain a Veteran's Affairs loan, you may not need to make a down payment at all. Government-sponsored entities such as Fannie Mae and Freddie Mac only require a down payment as low as 3 percent.

Down Payment Assistance Programs

If you are struggling to make a down payment, you could participate in a down payment assistance program. These programs will grant the money that is needed to make a down payment rather than requiring that the down payment be paid off.

Usually, those who are provided with a down payment assistance program are families that qualify for other forms of assistance. However, most home buyers who qualify for these programs are not informed about them and do not take advantage of them. Fortunately, you can participate in one of these programs by simply asking a bank.

In some cases, you may be better off avoiding a down payment if you can use the money to pay off other forms of debt, such as credit card debt. By doing so, you may look more attractive to lenders. Focus on paying off debts that have a higher interest rate so that you can climb out of debt more rapidly.  

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