Is a large downpayment always better?

Services for Real Estate Pros with Kemah Properties


Many buyers think they need huge amounts of cash for a downpayment, thinking that will save thousands in interest and lower your monthly payment in addition, you won't need to buy mortgage insurance if you pay 20% down. Fact is, most people do not pay near that much. Federal Housing Administration loans, with down payments as low as 3.5%, have become very common.


Here are a few reasons why a small down payment, even with the required mortgage insurance, can be a better idea.


The mortgage insurance premium that you pay may be offset by a lower rate. Many lenders will offer a lower interest rate if they know the loan is insured if you default


If you don't have 20% downpayment, you can buy now while prices are low.


Your cash has not been eaten up by your house. You will have cash in reserve for emergencies that will come along, such as job loss. medical issues, repairs etc.


You can invest your cash, and make it grow through safer distribution in a mutual fund or investment account.


You can always make additional monthly payments. Once you have 20% equity, mortgage insurance is not required. You can stop paying mortgage insurance once you have 20% equity in the home. This is something you have to request, as most banks are not going to purposely terminate a source of income.

Kemah Properties, exceptionally serving the communities of Kemah Texas, Kemah Oaks, Bacliff, League City and Clear Lake Shores. 281.851.7095 Owned and operated by Kemah residents Gay and Patrick Kelly.



















Comments (2)

Steven Cook
No Longer Processing Mortgages. - Tacoma, WA

Patrick,   Most of what you write is true, however, with the recent rise in the FHA MIP from .5% over couple steps to 1.15%/year now the price of MIP is causing some to go over allowable DTI.  Also, as of October 1, USDA is adding monthly MIP payments (much lower than FHA) but the kicker is that USDA Mortgage Insurance is going to be collectable throughout life of the loan.  Also FHA MIP goes off at 78% (and other conditins apply).

Sep 16, 2011 09:01 AM
Patrick Kelly
Kemah Properties - Kemah, TX
Kemah Properties

Thanks so much Steven. I posted to the public and simply wanted to let people know that the huge downpayment is not always necessary. If I got in to detail I would really confuse them, as I can be good at that.

Sep 16, 2011 09:39 AM