Jim Valentine: How much should I put down?

Buying real estate is about spending and earning money. If you are buying a primary residence the earning comes from the ownership benefits and the proceeds when you sell. The spending, on the other hand, is on the front end. Decisions have to be made as to how much to put down which varies from person to person and property to property.

Some folks pay cash, one easy payment. Others might want to maintain their on-hand funds so they minimize how much they invest in a property. It isn’t always that easy as there are consequences to each decision. If you have a low down then there could be additional charges such as mortgage insurance or a higher interest rate. Of course the monthly payment adjusts according to how large the loan is. The decision process is really a three dimension puzzle to be reviewed and analyzed.

When managing your cash flow you will want to consider how much you want to keep in reserve for emergencies as well as how much money you might want on hand for opportunities. You might buy and sell things, i.e., cars or real estate. You might be a collector of things that needs a cash reserve for opportunities that might arise. While you can pull cash from your property via a loan or line of credit, it takes time to set up.

When considering how much to put down consider the other opportunities or needs that you might have or encounter. Also consider the monthly cash flow. You might be able to qualify for more payment than you are comfortable making so keep that in mind. You’ll want to make a larger down payment to get your payment down. If you can afford more of a payment you might consider a 15-year loan. The payment is higher, but the rate is lower and you are paid off in half the time of a 30 year loan. If you are 50 and looking to retire at 65 your home would be paid off when you retire. If you are young, you can have a lower payment which will likely be spent on children things.

If you are selling a home to buy a new one you might want to look carefully at options. Some people think they can buy the new home first and when they sell their other home they can pay the loan down and adjust their payment. It doesn’t work that way unless you get an adjustable rate mortgage. Without that your payment will be the same before and after you pay the loan down. Of course you will have a lot more going towards paying down your loan rather than interest, but you might not want to have the higher payment for the life of the loan. Yes, you can re-fi at that point, but look at the cost of doing so and include that in your evaluation of which way to go.

If you are looking at a vacation home or an investment property remember that the rules are different over there. Most of the time you will be required to provide a larger down payment and the interest can be higher. A rental can provide cash flow that can help make the payments so be sure to look at the actual monthly cost to hold the property and the true income from the tenant so you know what your cash flow will really be.

Our Advice: When deciding how much to put down on a property there are a lot of variables to consider and they should all be considered. In addition to interest rate changes, consider the monthly payment, consequences like mortgage insurance, term of the loan, type of loan, and loan costs. Roll it all together and talk with your Agent about the best way to go for you and your circumstances.

Whether you have all cash or no cash, there are decisions to be made. Remember your goals and objectives when you make decisions and you will make the right choices for you and your family.

When it comes to choosing professionals to assist you with your real estate needs… Experience is Priceless! Jim Valentine, RE/MAX Realty Affiliates, 775-781-3704. dpwtigers@hotmail.com


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