8 Times You Shouldn’t Put 20% Down on a Home

When purchasing a home, it's usually a good idea to make a 20% down payment. That would mean, if you bought a $300,000 property, you'd pay $60,000 of your own money and borrow the rest.

Making a 20% down payment helps you qualify for the most competitive mortgage loan rates and allows you to avoid the added cost of private mortgage insurance (PMI), which you could otherwise be faced with. PMI is usually mandated by lenders on small-down-payment loans to ensure no financial losses befall them in the event of a foreclosure.

But while a 20% down payment is usually the best move, that's not always the case. In fact, there are eight situations when it may be a good choice to move forward with a home purchase, even if you have far less money to pay towards the property up front.

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Sometimes, you absolutely need to purchase a house ASAP for family, financial, or personal reasons.

If you need a home you can design around the needs of a disabled family member, for example, or you must have a place to run your home business from, you may not be able to afford to delay.

When you'd make your financial situation worse by waiting to buy a home until you can save up to put 20% down, you may want to bite the bullet and go ahead and make your purchase, even if your down payment is smaller than ideal.

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Sometimes, lenders offer special types of loans catering to people with low down payments or no down payment. This could include loans offered through first-time homebuyer programs and VA loans.

If you can qualify for one of these loans and pay a reasonable rate for your mortgage, even with a small down payment, it may not make sense to put off your purchase.

If you think mortgage rates will climb much higher before you can save a 20% down payment, you may not want to wait to get a home loan.

The higher the rate you pay on your mortgage, the more expensive your loan becomes. If rates increase substantially, you may even end up paying more for your mortgage if you wait to amass a big down payment than you would if you'd moved forward with borrowing to buy sooner -- even when taking PMI into account.

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If you're committed to moving forward with a home purchase but making a 20% down payment would drain your accounts dry, you may want to put down less money.

You need funds for closing costs and moving expenses when buying a property. And it's also a good idea to have emergency savings so that you don't risk foreclosure if unexpected expenses arise.

You'd often be better off leaving yourself enough cash for these purposes than emptying your entire savings account just to put 20% down.

In expensive areas, it could take decades to save up a 20% down payment.

If you're otherwise in a financial position to buy, you may be better off moving forward with less money down, so you can start building equity and setting down roots.

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If home values are increasing substantially and doing so quickly, any properties you are interested in could be much more expensive if you wait until you've saved up a 20% down payment. The extra you have to pay for your home later could offset any money you'd have saved from putting more money down.

Delaying until you've saved up enough could also mean missing out on the price appreciation you'd have enjoyed if you had purchased your property sooner.

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If you put down 20%, you'll be tying up a lot of money that can no longer be used to invest in other things.

And mortgages have pretty low interest rates, even if you do have to pay PMI. Because rates are low and interest is tax-deductible if you itemize, your ROI from taking out a smaller home loan isn't always very high.

If you think you'll end up with more money by borrowing more and using some of the cash you could've put down on your home to invest in assets that produce better returns, then a small down payment may be the right choice.

Sometimes, putting a ton of money down could mean you don't have the funds to start a business or earn your full employer 401(k) matching contribution.

The opportunity cost of giving up these goals may not be worth the money a bigger down payment could save you.

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As you can see, there are times when it really doesn't make sense to wait to buy a home until you can make a 20% down payment.

Ultimately, every homebuyer should carefully consider what size down payment is best in their situation. Just be aware that a loan without 20% down could be more expensive. And make sure that borrowing more than 80% of the value of your property is likely to pay off for you in the end.