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Should You Buy a House With a Small Down Payment? Here’s What Dave Ramsey Thinks – The Motley Fool

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You may be surprised about Ramsey’s recommendation for the min…….

Image source: Getty Images

You may be surprised about Ramsey’s recommendation for the 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 could be OK.
  • Ramsey doesn’t recommend going lower than 10%-15% down.

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

But, how much of a down payment should you put down? The answer can vary depending on your situation, but finance expert Dave Ramsey has some advice that could help you to make the right choice.

Here’s Dave Ramsey’s advice on down payments

Ramsey has made clear that the more you put down, the better. Ideally Ramsey suggests putting 100% down and paying cash for the entire home without getting a mortgage — although he acknowledges this isn’t an option for the vast majority of people.

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

As he makes clear, it’s riskier for lenders to allow you to borrow more than 80% of what your home is worth. So they will charge more and require you to pay PMI to protect them if you put down less than 20% of the house’s value.

Is it ever OK to put down less?

Although Ramsey urges home buyers to put down 20% if they can, this isn’t a hard and fast rule, and the finance expert makes exceptions.

“If you haven’t saved 20% after two years of intense saving, it’s okay to 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 that’s lower than 10% — otherwise, …….


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