The days of zero-down mortgages are virtually a thing of the past and unlikely to make a return any time soon. In the current lending environment, potential homeowners are encouraged to save as much down-payment as they can before approaching a lender and requesting a loan. But, is it really necessary to save a 20-percent down-payment? Consider the advantages and disadvantages of a larger down-payment:


Approval. For those prospective borrowers with past credit problems, a significant down-payment could make the difference between being approved for a loan or denied. Lenders generally look favorably on those who can afford to make larger down-payments with 20-percent down-payment borrowers more likely to be approved.

Lower Payments and Interest Rates. For those willing and able to tender a 20-percent down-payment, slightly lower interest rates may be available. The difference of a few hundred dollars a month could potentially improve a new homeowner’s quality of life and additionally lower overall stress levels. Larger down-payments typically mean smaller debts and lower monthly payments.

Private Mortgage Insurance. PMI (Private Mortgage Insurance) is a way for lenders to reduce risk when owner equity is low and lender investment is high. It also helps mitigate against possible foreclosure. Eliminating the added PMI expense required when down payments are under 20-percent of the home’s appraised value can save borrowers thousands.


Tied-Up Capital. If you prefer that your money works for you rather than having it sit in the bank, tying up a large amount of your available capital in a home could mean missing out on potential investment opportunities – and when those opportunities yield a higher rate of return on your money than the cost of borrowing those funds, it may be better to retain funds for investment.

Time.  For many Americans, saving for a down payment can take a significant amount of time, possibly years. If, for example, the average price of a home in the United States is roughly $200,000, a 20-percent down payment would require $40,000. Depending upon the area’s rate of appreciation in home values relative to the time needed to save those funds, it may be more prudent to buy with a lower down payment now than lose out on the more rapidly increasing value of your home than the time it takes to save the additional funds.

In the end, each individual or family’s situation is different and each must determine the size of their down payment based upon their own financial circumstances.  To make the best decision, enlisting the aid of trusted professionals is certainly recommended including financial experts, mortgage lenders or an experienced real estate agent. For recommendations on trusted mortgage lenders or to set up a consultation, feel free to contact me today. I will be happy to answer any questions you may have, and/or help you find your dream home.

Allyson Hoffman, ABR, ACRE, CDPE, CRS, e-PRO, GRI, SFR, SRES
RE/MAX Villager
Serving Chicago's North Shore, North and Northwest Suburbs
[email protected]

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Allyson Hoffman is your ultimate real estate resource for Chicago's North Shore, North and Northwest Suburbs and surrounding areas. Visit my website for detailed information regarding today’s real estate markets.   

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