The Down Payment Dilemma

Tips on how to choose a competitive down payment that’s right for you.

Buying a home is one of the biggest financial decisions someone can make. A large sum of money needs to be saved in order to close a deal— probably more than anyone has tried saving before. But does that much money really need to be saved? Putting 20 percent down has been known to be the norm, but does that mean it’s the right thing to do?

According to Kyle Gierada, director of mortgage banking at Quicken Loans, 20 percent isn’t the norm anymore. In fact, he actually advises against it when first buying a home.

“There are a lot of different pools of thought when it comes to the percentage. It all boils down to how long is planning to stay in the home. If they will be there a long time, put more money down,” Gierada stated. “But if you are a first-time home buyer facing a shorter expected stay and a lot of repairs that need to be made, put less down—maybe five percent.”

Gierada has worked with a lot of first time homeowners, and a majority of them have utilized the lower down payments for that reason.

Scott Marshall, senior mortgage consultant with A and N Mortgage Services, Inc., has the same mindset when it comes to down payments and first time home owners.

Marshall advises, “First-time home buyers should put as little of a down payment as possible. There are multiple factors to back that up, including the true cost of the home and the cost of moving into the home, including furniture and emergencies that can come up. The cost is always underestimated, meaning it’s always harder to get money out of the house than it is to put into the house. You can always make a payment later to help with the balance.”

Marshall mentioned that he always tells buyers to go in with what they would be comfortable with. Just make sure you have enough money when you get into the house.

If you’re not a first-time home-buyer, Marshall offers similar advice.

“You can put 20 percent down, but it will exhaust all of your money. Put less so you aren’t cash-strapped. Look at the big financial picture and your means to help the house. You should have at least three months of your salary reserved for taxes and insurance. Six months of your salary would actually be ideal so that you can help with the house. You can’t foresee problems that will arise down the line,” Marshall said.

When it comes to being competitive, both Gierada and Marshall agree that the higher down payment usually wins out and is seen as a more “qualified” buyer.

“The more you want the home, the more you should put down. A smart seller would look and see candidate A is bringing $50,000 and candidate B is bringing $10,000. They are obviously going to go with the person who is bringing more cash,” Gierada said.

Another way to stay competitive? Be flexible with your move-in date.

“If the seller is moved out and the property is vacant, it is advantageous to move your closing date sooner than later. If, for example, you decide to close on the 15th instead of the 30th of the month, they will go with someone that will buy sooner,” Marshall said.

Buying a home can be a very stressful experience—there are a lot of things that go into making the decision. But if you understand the process and outcome you want, it really pays off in the end. And it pays to have educated people on your team—surround yourself with people who are helping you make the right decision when it comes time to determine the right down payment.