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The 20% Down Payment Rule - Yay or Nay?
Dated: January 7 2020
You’ve most likely heard the rule: Save for a 20-percent down payment before you buy a home in the Fargo ND or Bismarck ND area. The logic behind saving 20 percent is solid, as it shows that you have the financial discipline and stability to save for a long-term goal. It also helps you get favorable rates from lenders in Fargo ND or Bismarck ND.
But there can actually be financial benefits to putting down a small down payment—as low as three percent—rather than parting with so much cash up front, even if you have the money available.
The downsides of a small down payment are pretty well known. You’ll have to pay Private Mortgage Insurance for years, and the lower your down payment, the more you’ll pay. You’ll also be offered a lesser loan amount than borrowers who have a 20-percent down payment, which will eliminate some homes from your search.
The national average for home appreciation is about five percent. In and around Fargo ND, the appreciation average is 3.72%. Bismarck ND is closer to 4.05%. The appreciation is independent from your home payment, so whether you put down 20 percent or three percent, the increase in equity is the same. If you’re looking at your home as an investment, putting down a smaller amount can lead to a higher return on investment, while also leaving more of your savings free for home repairs, upgrades, or other investment opportunities.
Of course, your home payment options aren’t binary. Most borrowers can find some common ground between the security of a traditional 20 percent and an investment-focused, small down payment. Your trusted real estate professional with the Brandenburg Crew can provide some answers as you explore your financing options. What Can the Crew do for You?
Brandenburg Crew Inc
The founder of the Brandenburg Crew Inc., Derek, was raised with the notion that hard work was a way of life. Growing up on a farm, most days started at 6am, and ended at 11pm. This work ethic followe....
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