It is likely that you have heard the rule: Before you buy a home, make sure you save 20 percent of the amount for a down payment. In a nutshell, 20 percent is a good option for saving money as it shows that you have a stable financial foundation to be able to save for a long-term goal while maintaining the discipline to do so. Getting a low-interest rate from a lender is also beneficial as it helps you get a better rate.
Having said that, there can really be some financial advantages to getting a loan on as low a down payment as you can afford, even if you have the funds available to do so. In fact, you may be able to save a lot of money by putting down a small down payment, as low as three percent.
THE DOWNSIDE
We are all pretty well aware of the downsides of paying a small down payment on a house. Private Mortgage Insurance is a requirement that you must pay for many years, and the lower your down payment, the more you will have to pay for it. You'll also be offered a smaller loan amount than borrowers with a 20 percent down payment, which will eliminate some homes from your search that you might not otherwise be able to choose from.
THE UPSIDE
The national average for home appreciation is about five percent. If you put 20% down on your house, the appreciation won't change, so no matter what the percentage you put down on the house, the increase in equity will be the same. The more you put down on your house, the higher the return on investment will be. In addition, the more you save on home repairs, upgrades, and other investment opportunities will ensure that you have more money to invest in other things.
