The Pros and Cons of a Low Down Payment

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For prospective homeowners, the down payment on a new home can be a big hurdle to clear. That’s especially true if you’re scraping together the full 20% of the purchase price. But there are multiple ways to finance a home — the Cushing team here at Guild Mortgage in Reno is happy to go through options with you — and a 20% down payment isn’t always required. If putting down less money upfront sounds like a dream to you, it’s worth investigating the pros and cons of a low down payment.

Financing Options

When it comes to low down payments, you have options. FHA loans, VA loans, and USDA loans are well-known programs designed to put homeownership into reach for specific candidates. Assuming you qualify, you could put down as little as 3.5% — and in the case of the VA loan, nothing at all. Be clear, however, that the low down payment has its pros and cons.

Pros of Low Down Payment

The biggest benefit of a low down payment is that it keeps your savings intact. For many people, a 20% down payment is a big chunk of change, and keeping some of that money accessible in the bank is reassuring. Having cash on hand makes you flexible in the event your car dies, your new home needs some updates, someone gets sick, or any other unforeseen event. Plus, diversifying your savings could prove to be a wise strategy if home values suddenly drop.

Cons of Low Down Payment

A smaller down payment means immediate equity in the new house will be lower, and the interest rate and monthly payment will likely be higher. Going in with a small down payment also tends to create a scenario in which homeowners are described as “house poor.”

The Takeaway

Unfortunately, there’s no single right answer that applies to everyone. The right option for you will depend on your circumstances and your eligibility for different loan products, and the only way to figure those out is by diving in. Understanding your eligibility for different loans is a good first step. Here in Reno, the Cushing Team can answer your questions about loans for which you may be eligible, and give you all of the facts about various down payment amounts and their effects on your interest rate, estimated payment, and potential equity. Contact us today, and let’s make a plan together.

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