For years financial experts have played up the importance of putting down a 20% deposit when purchasing a house. It has become mainstream and simply accepted by most people that are in the market for a new home, but the truth is that there are arguments that can be made against this strategy. Here are a few reasons why you might want to consider opting out of the 20% down method.
– Generally it is quite difficult to find a house that comes in anywhere under $200,000. This means that a 20 percent down payment is going to mean you need to save at least $40,000. This can obviously be difficult and means that you are most likely going to have to borrow from your retirement fund or other vital savings.
– If you plan to save that much money on your own it is probably going to take years. There is also a good chance that the price of the house you are looking for will increase in that time.
– The massive amount of money that you throw into that down payment may be better used somewhere else. You can keep your emergency savings together, fund your retirement, or even use it to improve your house and make it more valuable. The early years are the most crucial when it comes to investing, and if you are simply saving for a down payment you are neglecting other important investments.
– In the time you need to use to come up with the down payment you are more than likely going to be spending money on rent, instead of building up equity. You also will not be receiving any deductions on your tax return thanks to mortgage interest.
Do not get Financially Handcuffed by your Dream Home
While a mortgage can keep you financially handcuffed, putting down a large sum of money upfront on a house can do even more damage. Make sure you are not buying a house you cannot afford. There is nothing fun about being unable to afford a night out, or to fix a leaky roof just to get your hands on your dream home.
The fact is that there are some reasons to consider foregoing putting down a 20% down payment when you purchase a house. There may be better places where you can invest the money, and you could benefit from getting into that home as soon as possible rather than waiting to come up with the money.
It can be risky to purchase a house with not very much money down, but can really help you take advantage of the early investing years. Keep tabs on your emergency fund, find an appropriate mortgage, and crunch some numbers. Saving up all your assets and plugging every penny you own into a down payment does not have to be your only option, and may not be your best either.
Had people stuck to the 20% we would not be in the position we are today – there would have been no housing bubble. This resulted in the average person losing even more money because of decreasing home values. In the end this has costed them more money. I believe you are offering terrible advice. In addition, you have not outlined the necessary cost of mortgage insurance.