Is It Smart to Put 50% Down on a House?
To maximize your Galaxy Fold experience, you might consider folding your smartphone or viewing the full screen. Is it smart to put 50% down on a house?
My husband and I were living in an apartment when we met. His home was a small starter house with three bedrooms that he had purchased as an investment. Around the time we got engaged, I moved in. After a number of years together, we made the decision to move into a larger home. The area we chose was close to his work and offered a good school district. We were certain that we would like to have children.
Problem? The problem? We jumped at the chance to purchase a custom-built home when it became available.
The new house was more expensive than the one that we sold. The property tax bill was also going to be significantly higher. We decided to take steps to reduce our monthly housing costs. That meant that we paid 50% down on the home we purchased.
My husband purchased our house with very low money and had a very low interest rate. We were comfortable with a modest monthly mortgage payment, and we didn’t wish to increase it.
Lenders will typically require a minimum of 20% down payment. However, they might accept smaller amounts. There are loan products that can be used by people with low incomes.
We were buying new construction and our mortgage lender required a 20% downpayment. We wanted more.
Knowing that we would have to make a down payment of 50% on the new house, we knew we had to give up money for investments and retirement savings. We didn’t want our monthly budget to be too stretched. Our mortgage payments would drop substantially if we paid 50% down on our house’s price. This would allow us to make our monthly budget more manageable. Based on our interest rate and loan term, our monthly mortgage payment would be $800 lower if we made a larger downpayment.
We also knew that we would spend less on interest if we had a lower mortgage than we got. This alone motivated us to put more money into our down payment.
The value of our first home had almost doubled since the day my husband bought it. We had some money leftover after paying the commission to our real estate agent.
We were able to afford a large down payment because we already had enough cash and didn’t need to do a lot of saving. We did cut down on our spending during the construction of our new house to make sure we were prepared for any unexpected expenses.
Even though we refinanced from a 30-year loan into a 15 year loan, it is now manageable. We increased our monthly payments by $300. The higher monthly payment isn’t too bad, as we began with a low amount. This puts us in a position to repay our house sooner, and also allows us to spend less interest.
Most homebuyers won’t make 50% down, especially first-timers who may not have enough from the sale to pay for it.
However, I am grateful that we were able put the amount we had down. Over the years we have seen our costs rise, mainly due to having kids, and our income fluctuate (especially mine as I am self-employed). We have avoided financial distress by having a lower mortgage payment. We could have easily saved 20% on our down payment, but we are happy to pay the other half at closing.
There is a good chance that interest rates will not stay at their multi-decade lows much longer. It’s important to act now, regardless of whether you are looking to refinance your mortgage and reduce your monthly payment, or if you want to purchase a home.
Ascent’s mortgage expert recommended this company for a low rate. In fact, he actually used them twice to refi. To find out more about your rate, click here. Although it does not influence our product opinions, partners who offer us compensation may send us offers. Always remember that we are there for you. You can find The Ascent’s complete advertiser disclosure right here.
