When they sell their existing residence, repeat buyers often have extra cash from the appreciation in the value of their previous house. With more funds to work with, these buyers should consider several factors, including return on investment and tax benefits, in determining how much to contribute to the down payment on their new home. One advantage of owning real estate is that owners realize a profit on the money they invest through leverage. Regardless of how much or little down payment the buyers make, then, they still benefit from the full appreciation of the house. Therefore, it makes sense to make a smaller down payment and get a higher return from the likely appreciation.
Some buyers prefer making a low down payment to receive the largest possible tax break.
Borrowers also benefit from having extra cash on hand for emergencies, or possibly being able to buy a larger home. At the same time, making a substantial down payment lowers the amount of the borrower's monthly mortgage payments and reduces overall financing costs. Also, putting down at least 20 percent eliminates the need to purchase private mortgage insurance. Finally, lenders and sellers alike look more favorably on buyers who make large down payment because they pose less of a risk. The E-LOAN Lending Center has the answer to just about any question you could have about home mortgages and real estate financing.