Should you buy a house with a small down payment? Here’s what Dave Ramsey thinks

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You might be surprised at Ramsey’s recommendation for minimum down payment.


Key points

  • Dave Ramsey recommends putting down 20% when buying a home.
  • If you’ve been saving for two years and don’t have 20%, he suggests a smaller down payment might be fine.
  • Ramsey does not recommend dropping less than 10% to 15%.

Saving a down payment is part of planning to become a homeowner. Most, but not all, mortgage lenders require you to downpay at least a certain amount when buying a property. The purpose of a down payment is to ensure that you have money invested in the transaction – and to help avoid a situation where the lender has to foreclose and the house isn’t worth enough to pay off the loan in full.

But, how much of a deposit should you pay? The answer may vary depending on your situation, but financial expert Dave Ramsey has some tips that might help you make the right choice.

Here’s Dave Ramsey’s advice on down payments

Ramsey made it clear that the more you put in, the better. Ideally, Ramsey suggests putting down 100% and paying cash for the whole house without taking out a mortgage – although he acknowledges that’s not an option for the vast majority of people.

If you’re considering borrowing, Ramsey recommended on his blog to “aim for a down payment of 20% or more of the total price of the home.” He suggests that 20% is best to avoid private mortgage insurance (PMI) and to maximize the number of lenders willing to provide an affordable loan.

As he points out, it is riskier for lenders to allow you to borrow more than 80% of the value of your home. They will therefore charge more and ask you to pay the PMI to protect them if you deposit less than 20% of the value of the house.

Is it always acceptable to put less?

Although Ramsey urges homebuyers to deposit 20% if they can, it’s not a hard and fast rule, and the financial expert makes exceptions.

“If you haven’t saved 20% after two years of intense savings, you can lower your goal to 15% or 10%, especially if you’re a first-time home buyer,” Ramsey said on his blog. . “But never buy a house with a down payment of less than 10% – otherwise you will have to pay a lot more interest and fees.”

Ramsey adds that while some lenders allow down payments as low as 3.5% — or no down payment at all — putting that little down payment could leave you underwater. This would mean that you owe more than the value of the house, which could complicate your life significantly. Owning more than a house is worth can mean you’re trapped in the house with no option to sell or refinance unless you can bring cash to the table to cover the shortfall.

He also points out that a down payment below the recommended minimum of 10% could have a cost. “Remember that lenders who approve low down payment mortgages end up taking more of your money in the long run,” he warned on his blog.

Should we listen to Ramsey?

Although buying a house with 100% down payment usually doesn’t make sense, Ramsey is probably right that you should try to get a 20% down payment if you can. And, as he says, it can work up to 10% if that’s not possible. You just want to keep in mind how this can affect the overall cost of the mortgage. A mortgage calculator can help you play with the numbers to get an idea of ​​the impact of a down payment on costs.

You don’t want to wait forever to get on the homeownership ladder because you can start building equity and enjoying home appreciation as soon as you buy. But you also don’t want to take a huge risk and pay a lot of extra fees by putting nothing or very little funds.

Before you jump in, consider the interest rate you’re entitled to, your financial ability to buy a home, and your ability to save at least 10% to put aside when deciding what’s right for you.

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