You’ve most likely heard financial experts suggest that you save for a 20% down payment before you buy a Jersey Shore home. The logic behind saving 20% is solid. 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. (As of the writing of today’s post, that rate is 6.42% for a 30-year adjustable-rate.) But there can actually be financial benefits to putting down a smaller down payment—as low as 3%—rather than parting with so much cash up front, even if you have the money available.
Which Down Payment Strategy is Right for You?
The Downside
The downsides of a smaller down payment are pretty well known. First, you’ll have to pay Private Mortgage Insurance for years. Next, the lower your down payment, the higher your mortgage payment. Finally, you’ll also be offered a lesser loan amount than borrowers who have 20% down. Unfortunately, that eliminates some homes from your search.
The Upside
In a regular market, the national average for home appreciation is about 5%. These last couple of years were unusual. The appreciation is independent of your home payment. So whether you put down 20% or 3%, 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. Plus, it also leaves more of your savings free for home repairs, upgrades, or other investment opportunities.
The Happy Medium
Of course, your home payment options aren’t binary. Most borrowers can find some common ground between the security of a traditional 20% and an investment-focused, smaller down payment. Your trusted real estate professional and your lender can provide some answers as you explore your financing options.
Deadline Approaches to Apply for the NJ ANCHOR Program
Just a reminder. January 31, 2023, is the last day to apply for the NJ ANCHOR Program. This program provides both renters and homeowners who lived at the Jersey Shore on October 1st, 2019 with a one-time rebate. Income restrictions apply. If you have not applied yet, do not hesitate. Submit your application today!
Sherri Lilienfeld, eXp Realty, Your Source for Jersey Shore Real Estate