Which Down Payment Strategy is Right for You?

You’ve most likely heard the rule: Save for a 20% down payment before you buy an Inland Empire home. The logic behind saving 20% is solid, as it shows that you have the financial discipline and stability to save for a long-term goal. It also helps you get favorable rates from lenders. But there can actually be financial benefits to putting down a small down payment—as low as 3% (conventional loan) or 3.5% (FHA loan)—rather than parting with so much cash up front, even if you have the money available.

Which Down Payment Strategy is Right for You?

The Downside

The downsides of a small down payment are pretty well known. You’ll have to pay Private Mortgage Insurance (PMI) for years, and the lower your down payment, the more you’ll pay. You’ll also be offered a lesser loan amount than borrowers who have a 20% down payment, which will eliminate some Inland Empire homes from your search.

The Upside

SFGate reported that the national appreciation value averaged between 3.5% to 3.8% in 2020. The appreciation is independent from your home payment, so whether you put down 20% of the sale price or 3%, the increase in equity is the same. If you’re looking at your Inland Empire home as an investment, putting down a smaller amount can lead to a higher return on investment (ROI), while also leaving more of your savings free for home repairs, upgrades, or other investment opportunities.

The Happy Medium

Of course, your home payment options aren’t binary. Most borrowers can find some common ground between the security of a traditional 20% down payment and an investment-focused, small down payment. Your trusted Inland Empire real estate professional can provide some answers as you explore your financing options.

Muna Dionne, your Inland Empire specialist with Coldwell Banker Realty