Which Down Payment Strategy is Right for You?

Real Estate Agent with The "Z" Team 4 RE, Inc.

You’ve most likely heard this rule: "save for a 20% down payment before you buy a home". The logic behind saving 20% is solid. It shows that you have the financial discipline and stability to save for a long-term goal (like buying a Ventura home). It also helps you get favorable rates from lenders. But there can actually be financial benefits to putting down a smaller down payment—as low as 3%—rather than parting with so much cash up front, even if you have the money available. How do you decide whether the smaller down payment strategy is the right decision for you or not?

You probably heard about the 20% down rule for buying a Ventura home. While a sound strategy, sometimes a smaller down works more in a buyer's favor. Which down payment strategy is right for you?

Which Down Payment Strategy is Right for You?

The Downside

The downsides of a small down payment are pretty well known. You’ll have to pay Private Mortgage Insurance (PMI) for years. The lower your down payment, the more PMI you pay. You will also be offered a lesser loan amount than borrowers who have a 20% down payment. In turn, this eliminates some Ventura County homes from your search.

The Upside

According to Rocket Mortgage, the national average for home appreciation is about 2% per month and roughly 14.5% per year. But the appreciation is independent from your home payment. So whether you put down 20% or 3%, the increase in equity is the same. If you’re looking at your Ventura area home as an investment, putting down a smaller amount can lead to a higher return on investment. This also leaves more of your savings free for home repairs, upgrades, or other investment opportunities.

The Happy Medium

Of course, your home payment options aren’t binary. Most borrowers can find some common ground between the security of a traditional 20% and an investment-focused, small down payment. Your trusted real estate professional can provide some answers as you explore your financing options.

Dave & Pat Zumbrun, your Ventura County real estate specialists

Originally posted on our Ventura County real estate blog here: https://thezteam4re.com/down-payment-strategy/.

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Ventura Real Estate - The

 430 Manzanita Court 
Ventura, CA 93001

(805) 340-9338 - Office

Pat Zumbrun
Associate Realtor®
Email: patz4re@aol.com
Cell: (805) 340-9338
DRE #01229401

Dave Zumbrun
Associate Broker
Cell: (805) 340-9339
DRE #01227683

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Comments (5)

Bill Salvatore - East Valley
Arizona Elite Properties - Chandler, AZ
Realtor - 602-999-0952 / em: golfArizona@cox.net

Hello Dave and Patricia, great information to share with us here on the rain.  Most people need this advice. bill

Jun 06, 2022 12:12 PM
Paddy Deighan MBA JD PhD
http://irstaxdebt.pro - Vail, CO
Paddy Deighan J.D. Ph.D

certanly food for thought and a lot of byers wrestle with this issue...i think home price is a huge factor and the resulting higher PMI

Jun 07, 2022 12:39 AM
Richard Weeks
Dallas, TX
REALTOR®, Broker

Great information, thanks for sharing.  I hope you have a great day.

Jun 07, 2022 02:12 AM
Diana Dahlberg
1 Month Realty - Pleasant Prairie, WI
Real Estate in Kenosha, WI since 1994 262-308-3563

Definitely worth investigating the options of a 20% or 3% down payment.  Sometimes paying the PMI is worth it for the person who is credit worthy but cash poor.

Jun 08, 2022 09:24 AM
Jan Green - Scottsdale, AZ
Value Added Service, 602-620-2699 - Scottsdale, AZ
HomeSmart Elite Group, REALTOR®, EcoBroker, GREEN

You make a good point about having extra $ for remodeling.  Another idea is adding improvements to a mortgage.  Now that the housing market is shifting and might be slower, buyers may have time to try that trick.  GREAT POST!

Jun 08, 2022 03:53 PM