If you're signing a conventional mortgage, it's a great thing to be able to make a 20% down payment on your home, even though many lenders will accept less. Doing so allows you to avoid private mortgage insurance, a costly expense that's typically tacked onto your monthly mortgage payments and makes your home more expensive to own.
For many people, coming up with 20% down is a challenge these days due to the state of the market. But what if you have a pile of cash to put into your home down payment, so much so that you're able to pay for 50% of your home upfront?
At first, making a 50% down payment might seem like a good idea. But you should be aware of the drawbacks involved.
The upside of making a 50% down payment
There are two primary benefits to making a 50% down payment on a home. First, the more money you put down, the less you'll pay each month, thereby making those payments fit more easily into your budget.
As of this writing, the average rate on a 30-year mortgage is 6.82%, says Freddie Mac. So let's say you're buying a $300,000 home. If you put down 20%, your monthly principal and interest payments will be $1,567. If you put down 50%, your monthly principal and interest payments will be $979. That frees up $588 a month for you to spend on other things, or just over $7,000 a year.
Furthermore, if you make a 50% down payment on your home, you'll minimize the amount of mortgage interest you have to pay. In this example, putting down 50% leaves you paying a total of $202,613 in interest on your home loan, as opposed to $324,183 with 20% down. That's a savings of $121,570.
The downside of making a 50% down payment
It's easy to see why making a larger home down payment might appeal to you if you can swing it. But the problem with putting 50% down on a home is that you're tying up a lot of money in an asset that isn't very liquid. And that could cause problems if you end up needing cash down the line.
Let's say you make a 50% down payment on a $300,000 home instead of 20%, thereby spending an extra $90,000 upfront. What if you wind up needing to take a full year off of work to recover from an injury or illness and need $90,000 to cover your family's expenses during that time? What if your home ends up needing a series of very expensive repairs that amount to $90,000?
Suddenly, you're looking at having to borrow to access the funds you need. And while a home equity loan may be an option, you might pay more interest on that than a mortgage.
Also, the idea of saving $121,570 in mortgage interest over 30 years might appeal to you. But you should know that the stock market's average annual return over the past 50 years has been 10%. If you put $90,000 into a stock portfolio with that same return, in 30 years, it could be worth $1.57 million. So which would you rather do -- save $121,570 in mortgage interest, or walk away with $1.57 million?
It's definitely worth trying to make a 20% down payment on a home. Doing so could help you avoid the added expense of private mortgage insurance and help you keep your monthly payments to a reasonable level.
But proceed with caution if you're considering putting 50% down on a home. Though there's an upside to going this route, you might lose out financially after all's said and done.
FAQs
If you put down 50%, your monthly principal and interest payments will be $979. That frees up $588 a month for you to spend on other things, or just over $7,000 a year. Furthermore, if you make a 50% down payment on your home, you'll minimize the amount of mortgage interest you have to pay.
Is it easier to get a mortgage with 50% down? ›
A larger down payment means it's more likely you'll receive a mortgage since you are less risk to a lender. It also means you will own more of the value of your home, and a lower loan-to-value ratio (LTV) may help you qualify for lower interest rates and fewer fees.
Is it smart to put a large down payment on a house? ›
There are, in fact, many benefits to making a larger-than usual down payment, as we'll discuss below, including: avoiding having to pay for private mortgage insurance. reducing the amount of your monthly mortgage obligation. reducing the total amount of interest you'll owe.
How much of a down payment do I need for a $300,000 house? ›
How much down payment for a $300,000 house? The down payment needed for a $300,000 house can range from 3% to 20% of the purchase price, which means you'd need to save between $9,000 and $60,000. If you get a conventional loan, that is. You'll need $10,500, or 3.5% of the home price, with a FHA loan.
What is the best percentage to put down on a house? ›
It's better to put 20 percent down if you want the lowest possible interest rate and monthly payment. But if you want to get into a house now and start building equity, it may be better to buy with a smaller down payment—say five to 10 percent down.
What happens if I put 50 percent down on a house? ›
If you put down 50%, your monthly principal and interest payments will be $979. That frees up $588 a month for you to spend on other things, or just over $7,000 a year. Furthermore, if you make a 50% down payment on your home, you'll minimize the amount of mortgage interest you have to pay.
What is the lowest acceptable down payment on a house? ›
Conventional loans are most often but not always conforming loans, and they're considered the most common mortgage option. The minimum down payment for a conventional mortgage loan is 3% of the purchase price if you're a first-time home buyer, and it's 5% for repeat buyers.
Is $60,000 a good down payment on a house? ›
The amount you will need depends on the type of loan you choose. A typical 20 percent down payment on a $300,000 purchase would be $60,000.
What is a good down payment on a 250k house? ›
Putting down the standard 20% can help you avoid paying mortgage insurance and interest and could save you thousands of dollars. So you can expect to pay between $7,500 an $50,000 as a down payment on a $250,000 purchase. Keep in mind, besides the down payment amount, you will also have to factor in closing costs.
How much is too much down payment? ›
In fact, out of Bankrate users, 42 percent, or nearly 270,000 users, plan to put down less than 20 percent for their down payment, according to Bankrate's 2023 Annual Data report. Putting less than 20 percent can save a substantial amount.
To afford a $300,000 house, you typically need an annual income between $75,000 to $95,000, depending on your financial situation, down payment, credit score, and current market conditions.
Can I afford a 300k house on a 70K salary? ›
If you make $70K a year, you can likely afford a new home between $290,000 and $310,000*. That translates to a monthly house payment between $2,000 and $2,500, which includes your monthly mortgage payment, taxes, and home insurance.
Can I afford a 300k house on a 60k salary? ›
An individual earning $60,000 a year may buy a home worth ranging from $180,000 to over $300,000. That's because your wage isn't the only factor that affects your house purchase budget. Your credit score, existing debts, mortgage rates, and a variety of other considerations must all be taken into account.
What are the disadvantages of a large down payment? ›
Drawbacks of a Large Down Payment
- You will lose liquidity in your finances. ...
- The money cannot be invested elsewhere. ...
- It is inconvenient if you will not be in the house for long. ...
- If the home loses value, so does your investment. ...
- You might not have the money to begin with.
The credit score required for purchasing a home with no down payment varies based on the loan program and the lender's criteria. Here's a general overview of credit score requirements. VA Loan: Minimum credit score of 620. USDA Loan: A credit score of at least 640 is typically required.
Is 20k enough for a down payment? ›
To purchase a $200,000 house, you need a down payment of at least $40,000 (20% of the home price) to avoid PMI on a conventional mortgage. If you're a first-time home buyer, you could save a smaller down payment of $10,000–20,000 (5–10%).
Can I get a mortgage with a 50% deposit? ›
Anyone can get a 50% deposit mortgage, and it means you will access lower Loan to Value rates. Whether you can get a 50% deposit mortgage will come down to two things. First, the deposit – whether you've got enough money from your own savings or from a gifted deposit from a rich or generous family member.
Is 50% of income too much for mortgage? ›
In most cases, spending 50% of your income on your mortgage payment is probably too high. Most financial experts recommend that you spend no more than 28% of your gross monthly income on your mortgage. If you live in a high-cost area, the absolute most you should spend on your mortgage is 45% of your gross income.
Are smaller mortgages easier to get? ›
Small mortgages are hard to get because they aren't as profitable for lenders — not because necessarily they're riskier.
Does a higher down payment make your offer stronger? ›
So does making a higher down payment increase the strength of your offer? Yes; it shows more commitment to closing as you have more skin in the game and you have a higher chance of securing a mortgage.
