Calculating Down Payment
After you have your credit score and a ballpark estimate of what you can afford, it’s time to figure out how much you should put as a down payment.
Most people assume they should put down as much as possible. In some cases, that won’t be the smartest use of your money. You’ll need more than the down payment in order to move into and maintain a new home. And you’ll need to put money aside for home repairs, or as part of an emergency fund.
COMPARE 3 SCENARIOS
First of all, let’s assume you hope to buy a $400,000 home. And let’s say you have $80,000 in savings. “Hurrah!” we hear you saying as you whip out a calculator. “That means I’ve got 20% as a down payment. That’s ideal, right?”
Yes, except you need money above and beyond that down payment in order to move into and maintain a new home.
Let’s look at three scenarios. What happens to your overall financial health when you put 10%, 15%, or 20% down on that house?
Looking at the table below reveals that putting down anything above 10% will land you in some serious short-term pain – and potentially put your financial health in peril.
Our point? There really isn’t any fancy calculator that can help you here. Your best bet is to contact a whip smart lender to help you explore the scenarios. Together you can decide your own “sweet spot” that makes the most overall sense for your comfort zone and financial well-being.
TOTAL REMAINING This is how much money you have to the day you move into your new home. $9,472 – $10,157 -$29,849
Things to know about Down Payments
The size of your down payment is unlikely to affect your interest rate.
Many buyers assume that the more they put down, the better their interest rate. But it’s actually not true. Ask your lender to walk you through several scenarios, with 10%, 15%, and 20% down. You’ll notice that your interest rate stays either entirely or pretty much identical no matter what.
…but it will affect almost everything else.
Although we all obsess over interest rates, there are many more monthly fees that can really add up and are dependent on the total size of the loan (and therefore change based on your down payment). These include monthly mortgage insurance costs, homeowners’ insurance, hazard insurance, title insurance fees, and the loan origination fee, among others.