The Pros and Cons of a Large Down Payment When Buying a Home

In case you are looking for a new home, one thing you must determine is the amount you are willing to invest as your down payment. Now, let us look at a few pros and cons of opting for a large down payment when you purchase your next home.

A Large Down Payment Has Its Benefits

In case you have adequate funds, a large down payment may be quite advantageous for you. Here are some of the potential advantages that you may realize:

You Can Afford More ‘House’ – in case you want a large, luxurious home, you can get there with a significant down payment. If your credit aligns with your needs, making a large down payment allows more room in your mortgage.

You May Pay Less Interest – Alternatively, in case you are not required to carry a big mortgage, you can opt for a shorter amortization period for your mortgage. With a shorter loan period, the interest that you pay is also less.

You Might Not Need PMI – in case you can afford to invest over 20 percent of the value of your home in your down payment, you need not buy private mortgage insurance.

A Few Of The Downsides

Obviously, there are a few possible disadvantages to making use of a large part of your available cash as a down payment:

Do You Have The Money? – making a large down payment is not a good idea if your finances cannot deal with it at the moment. In case you only have the amount needed for your down payment, it may be better to reconsider.

You Will Be Less Liquid In The Short Term – remember that as soon as you sign the closing paperwork, you will lose your down payment cash. As a result, you will end up with less liquidity in the short term as you can only retrieve that money when you sell your home.

You Can’t Invest That Money Elsewhere – these funds cannot be used for other investment purposes. But because real estate in itself is an investment, this may not be as concerning.