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How do you decide if you have enough financial resources to either make a larger-than-normal down payment or pay all cash for the property?

Asked by Trulia Fort Lauderdale, Fort Lauderdale, FL Wed Mar 6, 2013

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This question is probably best suited for a financial planner or an accountant, but personally, I think it really comes down to comfort level. Most cash buyers have stockpiles of cash or assets put away so they can always rest comfortably. Keep in mind that even though someone may buy a home outright (i.e. in cash) there are still carrying costs associates with each property (i.e. maintenance, insurance, utilities, etc). If one has an income and can rely on that for the carrying costs then its obviously better to not have a mortgage or perhaps a smaller principal balance. Remember, the mortgage companies will always charge you a higher interest rate than you are getting in an ordinary savings account. If you are simply considering putting 25 to 30% down instead of the ordinary 20% down, then you'll have to figure out at what point would you have recouped the additional money down from the savings in potential interest cost. For example, lets just say that your larger downpayment is saving you $150 a month. In how many months would it take for you to recoup the difference in down payment that allowed you to have the savings in the first place? If that amount of time is longer than you anticipate having the property then perhaps its best to not put down the additional money. BUT there are a few other things to look into: would the additional money down save you from PMI? would it possibly put you in a better category to get you an overall better interest rate? Also, keep in mind that if you have a lot of equity in your home, you may be able to borrow against it in the future if you ever fall into a financial crisis.
1 vote Thank Flag Link Wed Mar 6, 2013
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