You’ve most likely heard the rule that you need to save up for a 20% down payment before you buy a Havasu home. The logic behind saving 20% remains solid. It shows that you have the financial discipline and stability to save for a long-term goal. It also helps you get favorable rates from lenders. With interest rates on the rise, that translates to potentially saving tens of thousands of dollars. But there can actually be financial benefits to putting down a small down payment—as low as 3%—rather than parting with so much cash up front, even if you have the money available. So, how do you decide which down payment strategy works best for you? Weigh the pros and cons before you determine which one to go with.
Which Down Payment Strategy is Right for You?
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’ll pay. You’ll also be offered a lesser loan amount than borrowers who put down 20% of the sale price. In turn, this eliminates some homes from your search.
The national average for home appreciation is about 5%. The appreciation is independent of your home payment. So, whether you put down 20% or 3%, the increase in equity remains the same. If you’re looking at your home as an investment, putting down a smaller amount can lead to a higher return on investment. It also leaves more of your savings free for home repairs, upgrades, or other investment opportunities. With the median sale price of a Havasu property coming in at roughly $450,000 in June, that means a down payment of between $13,500 (3%) and $90,000 (20%).
A Happy Medium
Of course, your home payment options are not binary. Most borrowers can find some common ground between the security of a traditional 20% and a more investment-focused, smaller down payment. Your trusted real estate professional can provide some answers as you explore your financing options.
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Originally posted on my Lake Havasu area real estate blog here: https://havasuareahomes.com/which-down-payment-strategy-is-right-for-you/.