Down payment refers to the payment given by the buyer when a house is purchased on mortgage. It is usually fixed but can also vary in terms of their percentage to the whole payment for the house. For instance, in case of purchasing a home for $400,000, you might be giving around $80,000 to your seller. Usually, it is around 20% of the total price of the house. However, sometimes, it can be increased or decreased depending upon the seller or mortgage rules. It’s pretty important to consider that your down payment is definitely going to impact your purchase.
Large or Small Down Payment
Large or small down payments certainly have their own pros and cons associated with your financial status. For example, if you’re depositing a small down payment for your newly purchased home, you are most likely to take on a larger mortgage payment in the end i.e. it will increase the original sale price of the house. On the other hand, if you’re depositing a large down payment, you’re most likely to reduce the additional payment you’re going to pay in case of a small down payment. Exact figures can be quoted in practical instances only but this rule is often followed.
However, there are also shortcomings associated with your large down payment deposit. For instance, once you have made a large sum deposited as you might not be able to get that back conveniently in case of any property dispute in future. This happens due to conversion of your down payment cash into a formal asset named as home equity. Home equity refers to the payment different of your home sale price that is written in documents and the price you still need to pay to get full ownership of the home. Home equity is not regarded as cash rather it is taken as a liquid asset, which cannot be demanded readily even in case of a property dispute between the buyer party and seller party.
However, if you’re an investor, this liquid asset factor will be beneficial for you more than when you’re moving in and making your down payment liquid assets. Being an investor, it is readily available to you.
This is one of most important reasons that the buyers don’t like to make a large deposit as down payment on home as their payment can be tied up for some time and that can stress out some buyers.
Contributed by: Greg Clarke Top Royal lepage Kelowna Real estate Agent. If you have any questions about buying or selling your home contact Greg at 250-869-9119