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3 Reasons Suze Orman Says You Shouldn’t Buy a House Without 20% Down – The Motley Fool

Image source: Getty Images

Will you regret buying a house with a small down payment?


Image source: Getty Images

Will you regret buying a house with a small down payment?

Key points

  • Most home buyers need to make a down payment.
  • Putting 20% down can help borrowers qualify for a loan with more lenders and at better rates.
  • Suze Orman provides several reasons a 20% down payment is ideal for home buyers.

Traditionally, most home buyers made a 20% down payment when purchasing a property. This meant for each $100,000 their home was worth, they put down $20,000. This has become quite challenging for some buyers in expensive parts of the country. A growing number of lenders offer loans with far less than 20% down, so this standard deposit isn’t nearly as common anymore.

If you’re considering putting less than 20% down on a property, though, you should be aware of some of the big potential downsides. Finance expert Suze Orman has pointed out several key reasons why buying a home with a smaller down payment could be a mistake, including the following.

1. Your interest rate will be higher

The first major reason why Orman urges home buyers not to purchase a home with less than 20% down — even if lenders allow them to — is because loans with lower down payments usually come with higher interest rates.

Interest is the cost of borrowing. Lenders charge higher costs for riskier loans, and low down payments undoubtedly carry more potential risk for lenders. If your interest rate on your home mortgage is higher because of a small down payment, each monthly payment for your loan will also be higher — as will your costs over time.

With a loan paid off over a long time — and especially one for a larger amount — even a slight bump in rates due to an insufficient down payment could end up costing tens of thousands of dollars in extra money during your repayment period.

2. You’ll need to pay for private mortgage insurance

As Orman points out, almost all loans that allow borrowers to make a small down payment come with an added cost. The exception is VA loans.

This added cost comes in the form of mortgage insurance. Mortgage insurance doesn’t insure you against losses — despite the fact you pay for it. Instead, it makes sure the lender doesn’t face financial loss.

See, one big …….


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