20% vs. 25% Down

6 Replies

I'm pre-approved for a 30-yr fixed loan and I'm looking at properties in the 100K-125K range. My interest rate is quoted at 4.875% if I put 20% down or 4.625% if I put 25% down. What is better or is it a wash? I'd like to leverage more if I can but I'm not sure the higher rate is worth it.

Ask your lender to plug in the numbers based on what you expect to pay for a property so you can see how much of a difference there is in the down payment and the monthly payment.

It also depends on your strategy. If you are looking to build your portfolio as quickly as possible then you will want the lower down payment. Both rates are excellent though and the difference in rate is not too much. For me it would be 20% down.

Promotion
Sharestates
America's Private Lender
Receive Fix and Flip Funding Approval In As Little As 24 Hours!
Sharestates helps developers and brokers secure funding quickly with the most competitive terms.
Get Funded
Originally posted by @Brad B. :
I'm pre-approved for a 30-yr fixed loan and I'm looking at properties in the 100K-125K range. My interest rate is quoted at 4.875% if I put 20% down or 4.625% if I put 25% down. What is better or is it a wash? I'd like to leverage more if I can but I'm not sure the higher rate is worth it.

There is a quarter point adjustment at 75% LTV (25% down) for conventional lending so thats why you may experience a better rate for additional down payment.

The answer to your question would depend on what the opportunity cost of that additional 5% down payment will yield you. If you can earn 15% on your portfolio average you may determine that your personal rate of return is 15% and that locking up that money in the property is costing you the difference between your 4.875% and the 15% you could be earning (10.125% spread) as an example.

Interest is always earned or paid even if you're doing neither you're losing the opportunity to do so (minus reserves of course since those are always recommended).