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A Bigger Down Payment or a Cushion in the Bank?

A Bigger Down Payment or a Cushion in the Bank?

Family saving money in piggy bank

Buying a home is likely the biggest purchase you’ll make in your lifetime. There’s a reason why people joke they feel “house poor” when they leave the closing table. Too often the burden of the down payment leaves homebuyers’ cash reserves empty.

And, new data shows that can be a recipe for financial stress.

A better measure: Cash on hand

Research by the JPMorgan Chase Institute flips the script on homebuyer risk. It turns out that having a cash cushion trumps a big down payment.

Historically, a big down payment is associated with lower risk, but the report found that liquidity — having at least three months of mortgage payments available — is a better measure of homeownership success. In fact, borrowers with less than one month of mortgage payment reserves defaulted at a rate five times higher than borrowers who had three and four months of mortgage payments available.

 

 

What about that interest rate?

Yet, homebuyers have an incentive of securing a lower interest rate to try and stretch to make a larger down payment. But, is it really the best for long-term success?

The short answer is no. Don’t make a big down payment at all costs. keep reading

The post A Bigger Down Payment or a Cushion in the Bank? appeared first on Down Payment Resource.

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