Higher Downpayment for Cash Later?

Question

Hi Everyone - my fiance and I are buying out primary later this year (new build) and I am debating on how much to put down as much down payment.

I was planning on 20-25%, but could go as much as 40%.

Outside of the lower monthly, would there be any benefit for putting more down?

If I did go higher on the DP and I wanted to take out some of the home equity in a year or so what would be the right vehicle? HELOC? Cash Out Refinance?

Thanks for the insight!

Steve Vaughan · Answer

As little as possible.  At this stage, this is a partnership of unrelated parties.  You will be buying as what initially?  Tenants in common? Riskier vesting.

When clean ownership isn't a factor, it just becomes an opportunity cost/benefit analysis.    My cash is earning 5% risk-free in money markets right now.

What will your mortgage rate be?  Then your cash will be 'earning' that rate.   If it's not at least 2% more for a lack of liquidity premium, keep the cash.

Sam Yin · Answer

On top of it all, the likely hood you will move out/on from this house is high, statistically speaking.

Keep your cash. Park it or invest it elsewhere.  If you are in a fast appreciation area, you can still get that HELOC later to add onto your cash stash.

Steve Meyers · Answer

@Ryan Cousins I would do the 20% down to avoid the PMI no sense in putting more down if you're planning on doing a cash out or heloc in a year.  I would take the addtional capital and find a flip or an investment property where you can do a BRRRR.  It's hard to BRRRR in SD but maybe another good rental market.

Edward Dean · Answer

By the numbers you are usually better off doing the 20-25% down (or less as long as you are avoiding PMI or similar fees) rather than the 40% and just keeping the extra cash in reserves. Some people have a personal preference to pay their homes off as soon as possible which is fine if that is your goal but you will generally build your wealth faster by allocating that extra down payment towards another investment using leverage. If the goal is a quick payoff and you can swing the monthlies, you can go for a 15 year fixed to pay it off more quickly but again this leaves you with less cash to invest in other income producing assets. If you are anticipating a transitionary period coming up soon where you may have less money coming in each month, like a career shift, and that is why you are wanting a lower monthly payment then again having a bigger reserve in cash you can tap will likely be easier than just plunking more down to reduce costs. And remember, doing something like a refinance is not usually free, you have to pay some amount for the new loan, whereas having that money in your account not only costs you nothing, but you can be gaining interest off of it until you are ready to deploy it.

Best of luck!

Ryan Cousins · Answer

Thanks All!! Seems like keeping cash is the way to go.

Joe Homs · Answer

@Ryan Cousins you may have answered your own question.  Put as little down as possible and keep your money ready for other opportunities.  Putting more money down is of no benefit and yes you can pull it back out later with a HELOC, but you will pay interest on that money?

Good Investing...

Higher Downpayment for Cash Later?

Most Popular Reply