People choose low-down-payment loans for many reasons. For some, the justification is simple: they just don’t have the money but want to buy a home. For others, the reasoning is more complicated: even if they can afford a full amount, they may choose a smaller down payment.
So why would someone choose a minimum-down-payment loan?
Here are the top 8 reasons…
8 Biggest Reasons Why People Choose Minimum-Down-Payment Loans
1. Investors and Business Leaders Want to Keep Liquid Business Capital
If you are an investor or business owner, it may be wise to keep liquid capital in your bank account so you can utilize the funds for different purposes. This is especially true if you own multiple rental properties, as you will likely need money for property repairs and upgrades.
No matter what your specific business, you may need equipment, legal support, or new employees, so keeping readily-available liquid capital in your account may be a wise decision.
2. Looking to Purchase a Larger or More Expensive Home
If you want to purchase a large home, you may need a larger down payment in total, but not necessarily by percentage. What do we mean? Well, imagine you have $50,000 to use towards the loan. If you were going to make a $500,000 purchase, that $50,000 would represent a 10% down payment. However, if you want to purchase a $2-million property, the $50,000 would only be 2.5%. So the same amount of money could be a large or small down payment, depending on the home you buy.
Therefore, if you want to buy a more expensive home, you may actually need to use a minimum-down-payment jumbo loan just to make the purchase, as the money you have saved won’t qualify as a large down payment on expensive properties.
3. You Can Withstand Higher Monthly Payments
The less you bring as a down payment, the more your monthly bills will be. A lower down payment means a reduction in the total amount of money you will be borrowing, so this inevitably means a lower monthly payment. The differences, however, may justify using a low down payment if it means only a slight increase in monthly payments.
With so many variables, there are endless comparisons we could make to show the monthly payment differences, but we’ll keep it as simple as possible. Using our mortgage calculator, let’s look at a $1-million purchase. With a 10% down payment ($100,000 total) and 4.25% interest, you would have a total monthly cost of $5,885 on a 30-year mortgage. However, if you reduce the down payment to 5% ($50,000) and all other factors stay the same, your monthly costs goes to $6,286.
So by holding on to $50,000, you would increase your monthly payment by about $400. For some, this relatively-small increase justifies using a smaller down payment.
4. Desire to Purchase a Wonderful Home Soon
Saving for a down payment takes time, time that keeps you from purchasing the home you want. If you come across the home that is perfect for you, you might think that, because you don’t have a down payment, you’ll have to pass on the property, or at least wait to purchase it.
But as you know, most properties don’t stay on the market for very long. This is especially true for hot markets like San Diego and the surrounding area. If you want to purchase a top-quality home in a fast-paced market, you may need to use a low-down-payment loan instead of waiting to save tens of thousands of dollars.
5. Want to Avoid Making Rent Payments for Many Years
There is also the fact that when you own a home and make mortgage payments, a portion of those payments is essentially paid to yourself. If you are paying rent, 100% of the money goes to someone else.
Paying a mortgage acts like a forced savings account as you steadily build equity. The longer you wait to purchase a home, the less equity you can build in your lifetime. If you want to avoid making rent payments, you can take advantage of a loan with lower down payment requirements.
6. Leveraging Home Appreciation Sooner
Homes tend to go up in value, so the sooner you purchase, the more you’ll realize in appreciation. Yes, home values can go down in certain areas and at certain times. But, in general and across the board, you will see a steady increase in home values, which means you are purchasing a property that will steadily gain over time.
People who want to leverage to appreciation of home values as soon as possible will often look towards low-down-payment loans as their best option.
7. Want to Purchase Multiple Investment Properties
Say you have $150,000 for down payments, but you want to purchase multiple large investment properties. Does this mean you can only buy one? Not necessarily. When using low-down-payment loans, you may be able to stretch that $150,000 into multiple small down payments instead of one large down payment. This will allow you to expand your property portfolio at a faster rate.
8. Feel More Comfortable with Savings in the Bank
Some people, quite frankly, just feel better with money in the bank. Instead of using their entire $100,000 savings for a down payment, you may be comfortable holding on to half of it for emergencies. Many people simply find comfort in having savings available for car repairs, home maintenance, health bills, and any other expense that may come up.
There’s nothing wrong with holding on to cash if it makes you feel more comfortable, so don’t assume that you must use your entire savings on a down payment when there are low-down-payment options available.
Quality Loans for All Your Property Needs
If you want to learn more about low-down-payment loans, contact the staff at San Diego Purchase Loans.
Our team understands how to deliver high-quality loans to a wide variety of borrowers, so whether you need an investment property of your first home, we are here to help.
“Chad and his team were fantastic. They were incredibly responsive to us and our needs. Chad laid out several refinance options for us, and was very supportive when we decided on the option we felt was best for our family. Chad and his team worked our deal and got our mortgage funded incredibly fast, with excellent service and even took the time to thank us personally once we funded. I can’t recommend Chad enough!”
I highly recommend Chad Baker. He does a phenomenal job and won’t trauma you or your clients. He has a whole team that works on the loans. And all the team members are great. He has a person that can translate for your clients that are Chinese. He is as good of a loan officer as you are an agent, and that is what you want when referring clients to a lender.
“Hi Juliann and Chad, I wanted to take a moment and thank you guys for what would have been impossible for us to do without you. We wouldn’t have our keys in hand if it had not been for your help in navigating the financing, and Juliann’s perseverance in getting the rest of the players in the transaction to deliver. Out of everything, our interaction with your office has been a highlight – and your customer service has been beyond everything we’ve experienced in the real estate industry. Is there a way we can provide any reviews, ratings, testimonials, or other statements that can express to your potential future customers how much you guys do to make the customer’s life easy? Please let us know how we can share our great experience with you to the rest of the public. Whether we refinance this under a VA, or get in a bigger/better house in a few years, we’re not going to go anywhere else for financing. We are customers of yours as long as you are in business. Thanks again for getting us in a house!”