Optimum amount of mortgage

3 Replies

Hi all,

This is my very first post on BP. I'm excited to learn as much as I can before buying my first property!

I have a question regarding mortgage amounts. (Sorry if this topic was already discussed in the past, but I haven't found anything yet that answers my question)

I was wondering if anybody could tell me how the optimal amount that a real estate buyer should lend can be calculated. 

In case a buyer has enough money to buy a first property 100% in cash, how can you evaluate if it isn't better not to take a 100% downpayment and use leverage to increase returns? Is there a way to determine the optimum % of downpayment that should be made?

Thanks in advance! 

Banks have guidelines. I would consider them conservative: 70% leverage plus 6 month reserves. So if you want to take more risk - take more leverage, if you want to stay even more conservative - take less leverage. This is my simple thought. I would be happy to see other approaches about leveraging as well.