by Maurie Backman | March 6, 2021
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Mortgage borrowers commonly put down 20% on a home. Here's why we went higher.
When I met my husband, I was living in a tiny apartment and he was living in a modest three-bedroom starter home he'd bought as an investment in his very early 20s. I moved in around the time of our engagement. And after a few years of living together, we decided to upsize in our existing neighborhood. We knew we wanted to have kids, and the area was convenient for his job and had a school district we wanted to stay in.
The problem? There was a limited supply of larger homes on the market at the time, and none really suited our taste. So when we came across an opportunity to buy a new construction home -- one that would be custom-built for us -- we jumped on it.
Of course, that new home cost a lot more money than the one we were selling. We knew the property tax bill would be substantially higher as well. And so we decided to do what we could to keep our housing payments manageable -- and that meant putting down 50% of our home's price as a down payment.
My husband bought our old house for very little money, and he'd locked in a low mortgage rate. As such, we were used to a pretty modest mortgage payment and didn't want to triple it.
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Many lenders want a 20% standard down payment, though they may accept less. And, there are specific loan products designed for people who can't put 20% down. New construction is different. You often have to make at least a 20% down payment because there are added lender risks with a home that's being built to your specifications.
Our mortgage lender wanted a 20% down payment, especially since we were purchasing new construction. But we wanted to do better.
We knew that by making a 50% down payment on our new home, we'd be giving up money we could use for other things -- investments, retirement savings, and so forth. But we also didn't want to strain our monthly budget too much. We figured our mortgage payment would be substantially less if we put down 50% of our home's purchase price, which would make it easier to manage. In our case, based on the interest rate we qualified for and the term of our loan, we stood to pay $800 less per month by making that larger down payment.
Also, we knew that the lower a mortgage we took out, the less money we'd spend on interest in the course of the loan. And that alone was motivation to pump more cash into a down payment.
By the time we sold our starter home, its value had nearly doubled from when my husband first bought it. After paying our real estate agent commission, we had a nice amount of money left over.
In fact, that's part of the reason we decided to make such a sizable down payment -- we had the cash easily available and we didn't have to scramble like crazy to save. Though we did actually cut back on spending while our new home was being built in case different expenses arose.
These days, our mortgage is still quite manageable despite the fact that we recently refinanced from a 30-year loan to a 15-year loan. In doing so, we increased our monthly payment by about $300. But because we started with an affordable payment, that higher amount isn't so bad. Plus, this puts us on track to pay off our home sooner and spend even less money on interest.
Of course, most homebuyers won't be in a position to make a 50% down payment -- especially first-timer buyers who don't have the proceeds from the sale of another house to use to their advantage.
But I'm grateful we were able to put down the sum we did. Through the years, we've seen our expenses rise (largely due to having children) and our income fluctuate (especially mine, as I'm self-employed). Having a more reasonable mortgage payment has helped us avoid a world of financial stress. And while we could've easily gotten away with a 20% down payment on our home, we don't regret paying half of it off at closing.
Chances are, interest rates won't stay put at multi-decade lows for much longer. That's why taking action today is crucial, whether you're wanting to refinance and cut your mortgage payment or you're ready to pull the trigger on a new home purchase.
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