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Nebraska Down Payment

Is It Better To Put Down A Large Down Payment in Nebraska?

If you are purchasing a home in Nebraska it is important to know all your down payment options

Is it better to put down a large down payment? The short answer is “It depends”. A look at your current finances and debt will help determine the best option for your down payment amount. Many home buyers think you have to put down 20% to purchase a home. This is not the case. In fact it is often not the best use of your funds. The extra money you put down on a house does not affect the monthly payment all that much and there could be opportunity to use those funds more effectively.

I am a local lender serving Omaha, Papillion, La Vista, Bellevue, and all of eastern Nebraska. I can sit down with you to go over all of your options. You are going to have your mortgage for 30 years so let’s take a bit of time to make sure you are getting your best option.

To see how much home you can afford go HERE

Pros of putting down more

  • Avoid Mortgage Insurance
  • Lower payment
  • Start off with more equity in your home
  • Might open up new programs

Cons of putting down more

  • Less cash available for other opportunities
  • Might not change your payment all that much
  • Better to pay off other high interest debt
  • That money could be used to buy investment property

Why is putting more down a good idea?

Putting down more on a home will allow you to qualify for a larger home. It will typically also improve the rate and terms of the loan. In the case of a Conventional loan, a larger down payment will lessen or eliminate Mortgage Insurance (for more information on MI go HERE). Government loans (FHA and VA) are more designed for low or no down payment buyers and do not provide much benefit for a larger down payment.

Now avoiding mortgage insurance or getting into a conventional loan instead of an FHA loan is important. Mortgage Insurance is a cost to the buyer and provides no benefit so trying to avoid it is fine. But sometimes paying the Mortgage Insurance makes sense if there is a better use for you down payment money.

Paying down higher interest debt

There are many reasons to not put down a larger down payment even if you can. If you have higher interest consumer debt (credit cards, installment loans, car loans) it might make more sense to use that money to pay those debts down first. If you have a car loan of $10,000 with a $350 payment, it might be better to use $10,000 towards that car loan. Putting an extra $10,000 towards a house loan is only going to save you about $50 a month on the payment. The difference could be even greater on a credit card.

Investing the down payment money where it will get a higher return

It is also important to consider the loss of investment opportunity of a larger down payment. Mortgage rates are historically low. It might make more sense to put down less on a home and invest the additional funds in something with a higher return.

It is important to speak with a financial adviser, but if you can get an average return of 7% on a retirement account, and mortgage rates are in the 3% range, the retirement account is the better investment.

Buying your new house AND an investment property

Have you ever though about getting into real estate investing? I think everyone at one point has thought of building a real estate portfolio. When we are young and ambitious we all looked into starting small with a few houses and possibly retiring early on passive rental income. When we get older we all look back and wish we would have started buying property. There never seems to be a good time to make the initial investment in real estate.

If you have owned your current home for some time you may have a significant amount of equity. Or perhaps you have been saving for that 20% down on your first home. But what if instead of applying all of your equity to the new home, or putting down that 20%, you bought a rental property at the same time you purchased your new primary home.

Let’s figure out if a lower down payment for investment is worth it

Let’s say you are buying a 250k house and have the 50k down for your 20%. You could put down 5% instead and use the remaining $37,500 to put 25% down on a $150,000 rental property. We could calculate the cash flow on your new rental and compare it to the higher payment on your low down payment mortgage. If the cash flow offsets the higher payment, it might be better idea to start building your real estate empire with that extra money.

Even if the cash flow does not quite make up for the higher payment it could still be worth starting that investment portfolio. You would be building equity in two properties instead of just one. I have had many buyers kick start their investment portfolio with this method. As you start to build equity in multiple houses, this can start to snowball and create an opportunity to purchase new investment property more quickly.

How will you know how much to put down on a home?

As you can see there are several ways to structure your loan. The only way to really know what is going to work best for you is to sit down with a local mortgage lender and go over the pros and cons of each. I personally have used the equity in my house to pay off consumer debt and to start my investment portfolio. You would be surprised how quickly you can start to build equity in a home. In just a few years you could have a resource to restructure your families finances, start a business, or kick start your investments.

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