One of the biggest concerns that many first-time homebuyers have is how much money to put down. Before an individual can actually decide on whether to put down as much is they can afford or as little as necessary, there are a few important things that they should consider.
One of the biggest benefits that come from putting down a large payment initially is that an individual's monthly payments will be lower because they are borrowing less money from their bank or other lender. For example, if an individual purchases a home for $200,000 but puts down a $100,000 down payment, they are only actually borrowing $100,000 from the bank. It is easy to see how dramatic of a difference $100,000 versus $200,000 in loans will be when it comes to monthly mortgage payments.
Another thing to keep in mind in this scenario is whether or not an individual would be better off investing some of that money into the home rather than simply putting it down in order to get a smaller loan initially. For example, an individual may want to consider keeping $50,000 in order to make home improvements and only putting $50,000 down, leading to a $150,000 loan on a $200,000 home. If the home improvements are done correctly and are necessary, the added value that they can bring to the house can be dramatic, leading to an almost instantaneous increase in the equity that an individual has in their new home.
This is the scenario that many individuals are not familiar with. Many experts recommend that an individual put as little money down as possible when getting a home loan. Of course, this is based on the idea that the value of the house will go up rather than decline. In this situation, if an individual's able to put as little as $10,000 down on a home that costs $200,000, and the value of the home goes up by as little as $210,000, the individual will have doubled their money by increasing the equity that they have in their home from $10,000 to $20,000. This is a 100% return, which is virtually unheard of in any other type of investment.
The important thing for individuals to keep in mind is that they are not borrowing money on a home so that they can waste it. Instead, what they are doing is actually leveraging an asset that they have, in this case cash, in order to transfer it into another kind of asset, real estate.
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