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8 Pros and Cons: Should You Invest 20% In A Home?
Does the 20% down payment make sense for your finances?
Well, it depends.
Sometimes, putting the whole 20% down on a home might be less advantageous.
But then, there will also be times when putting money down on a home is advantageous.
If you’re crossing from renting to buying, this is a critical question to ask to ensure you make the best decision for your present and future finances.
How Many People Put 20% Down?
Around ~30% of people put down 20% on their homes. (Source: Lending Tree)?
However, this seems relatively high since most people don’t have liquid emergency funds.
Most people aren’t investing 20% because they don’t have access to high-liquid amounts of cash. Their money is tied up or non-existent due to heavy debt and expense loads.
Why You SHOULD Put 20% Down?
1. people put down 20% of their mortgage to avoid paying PMI.
Private mortgage insurance can add up relatively quickly – usually, it ranges from 0%-2%.
The higher your mortgage, the higher your PMI costs. If you’re lucky enough to have such a thing as veteran benefits, you can get away with putting little to nothing down and not having to deal with the PMI requirement.
2. people pay 20% to avoid large mortgage payments.
The lower your mortgage balance, the lower your monthly mortgage payments, which can decrease your financial stress load and anxiety.
Most people desire to pay as little as possible on their mortgages, which is one of (if not the most) costly expense people have.
3. Pay your home off faster.
Some people put more down on their homes to help them pay down their homes faster. The faster you pay down your home, the quicker you will come into owning it.
4. The interest rate is high.
The higher your interest rate, the more you will pay overtime. If you pay your home down faster (and don’t incur significant penalties), it saves you money in the long term to pay your home off faster.
Investing the 20% helps you get a nice head start.
Why Should You NOT Put 20% Down?
1. The interest rates are low.
If you’re lucky enough to land a low-interest rate, there isn’t much reason to invest 20% when you can earn a higher interest rate through investing.
2. It doesn’t feel right or isn’t in the cards
You don’t have 20% to put down. If you haven’t saved 20% or don’t feel comfortable investing that amount of money into physical real estate, don’t.
3. You don’t have an emergency fund.
If you don’t have a fully stocked rainy day fund, it is illogical and likely impossible (unless you have assets or investments to liquidate); there is no reason you should be throwing 20% on a mortgage.
Before moving into a home, you should have at least 12 months of savings.
4. You have the money and don’t want to waste money on PMI.
Let’s say you have 20% to put down on a home and an entire stocked emergency fund. Well, there might be little reason for you not to follow through.
Paying 20% of your home is not a requirement; it’s simply a recommendation.
This content is for informational purposes only — not professional advice. Consult a qualified professional before making any major decisions.