How Much Should I Put Down on My Home Purchase?

When you decide to buy, the first question is often how much you should put down on the property you wish to purchase. There is no right answer per se, but there are a number of different approaches.

For most buyers, the goal is to put down as little as possible. This allows you to minimize damage to your cash flow and have money on hand to deal with expenses related to the purchase. It also effectively limits your exposure if something happens to the real estate market that causes it to drop in value as we are currently seeing. No down and low down loans are now being dropped by people right and left as they walk away from homes that are upside down.

On the other hand, a lender is more apt to give you a loan if you are putting more money down. The standard amount is 20 percent. This is a magic number because it tells the lender you are sharing in some of the risk associated with financing the property. If you have 20 percent down, you are less likely to walk away from the property. Thus, there is less risk to the loan defaulting, a particularly big issue these days.

So, what should you do? Ironically, the answer may no longer be in your hands. Given the massive number of defaults we have seen in the last year or two, lenders are no longer handing out money like it is candy. Known as the credit crunch, they simply do not have much to loan. When they do, they are requiring borrowers to put more down and share in the risk. This, of course, keeps buyers from walking away from homes that have lost value since they have something on the line.

There is little doubt the mortgage industry is currently going through a rather major correction. The bill for the easy money days of the early month has come due. This has resulted in a finance and housing market that is an utter mess. The ship will right itself, but it is going to take some time.

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