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.


DOWN PAYMENT AMOUNT

10%

15%

20%


Total Savings
$80,000
$80,000
$80,000


Cost of Home

$400,000

$400,000

$400,000


Down Payment

$40,000

$60,000

$80,000


Interest Rate Note:This stays the same regardless of your loan or down payment amount.
3.375%
3.375%
3.375%


Closing Fees / Adjusted Origination Charge
$2,771
$2,720
$2,668


Lender & Owner’s Title Insurance Note: This stays the same regardless of your loan or down payment amount.
$1,212
$1,212
$1,212


Reserve / Pre-Paid Costs Several months’ worth of taxes, homeowners’ insurance, and mortgage insurance costs. Must be set aside in an account to be paid to various parties “up front” to ensure you can cover them.

$4,257

$3,937

$3,681


Monthly Home Maintenance Costs Calculated at 1.5% of the cost of the home per year. Note: This stays the same regardless of your loan or down payment amount.

$500

$500

$500


Monthly Mortgage Insurance Costs

$147

$90

$0


Monthly Home Insurance Costs

$150

$141

$133


Monthly Real Estate Tax Note: This stays the same regardless of your loan or down payment amount.[/fourth]
$366

$366

$366


Monthly Mortgage Payments

$1,592

$1,503

$1414


Total Monthly Home-Related Payments

$2,255

$2,120

$1,914


One-Time Moving Costs Includes things like the moving truck, basic renovations, etc.

$5,000

$5,000

$5,000


Six Months Of Emergency Expenses Let’s assume $3000 per month for mortgage and basic living expenses.

$18,000

$18,000

$18,000


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.