Why Your Down Payment Needs To Be Higher as a Homebuyer

This is something you need to know if you are a home buyer, even in today’s market where you think it’s getting better for you. I’m going to explain to you why your down payment needs to be higher than you think it does. What we’re seeing too much is just many, many tiny down payments and what we call the down payment, which is really your earnest money and then your first deposit. Sometimes it’s together in a lot of states, it’s the money that’s going to hold the transaction until closing. So if you’re getting a mortgage, you’re going to have a little bit or a lot bit upfront, and then you’re going to pay the rest that you owe in cash at closing above the mortgage. So if you have a $200,000 mortgage, you may come and say, I want to put $10,000 down. This is why I’m going to explain to you why you need to have more down.

So if you have $200,000 say you’re putting 20% down on a million-dollar property, so you have an $800,000 mortgage, $200,000 in cash, and you only want to put $10,000 down and put 190,000 at closing. One, you should have the money in the bank. So putting it in as a deposit early is only going to help you. What you are worried about is that you’re going to lose the money. You’re only going to lose the money if you just do a walkaway. In general, there are lots of ways that you can get out of transactions the right way. When things go wrong, there are inspection issues that you can’t resolve that are built into the contract. Both parties have a right to cancel for a lot of things. Really, the only way you’re going to get caught losing a deposit is if you just walk away for no reason.

And if you’re planning on doing that and you’re only putting a little down, that’s exactly what the sellers think. It’s called skin in the game for a reason. And when you have a very tiny down payment, you have no skin in the game, there’s nothing holding you. So if you think that you only have $10,000 down and you think in your head, well, no one would just walk away from $10,000. It’s much easier to walk away from $10,000 if you see another house that you think you like more than walking away from $100,000. So that’s the thing. And so buyers say, well, I’m trying to prevent against that. That’s correct, but you have no power that way. Sellers understand that. And what sellers want is people who are willing to put enough money upfront to secure the deal.

So our general principle is no matter how much money you’re putting down as a down payment total, we think that you should have half at least up for deposit prior to closing. So if you’re putting $200,000 down, you should have $100,000 holding the deal. Once you’re in and you’re putting 500,000 in cash as long as you’re over $100,000 in cash down, I think you’re pretty safe. But we’re talking about percentages and holding a deal. This is especially important when you’re dealing with multiple offer situations. If you’re a home buyer and you’re bidding just against one other person and you have the exact same bid amount, a million dollars, both 20% down, so both $200,000, and you want to put $10,000 down to hold a deal of a million dollars, which is only 1%, and then they want to put a hundred thousand dollars down, which is 10% to hold the deal and much harder to walk away from, and all your terms are the same, guess what? They’re going to take their offer because they like the house more than you do because you’re not willing to commit.

You’re too worried about losing money for some funny business, which does not happen. You’re only losing the deposit if you do something funny. And look, the sellers, and a lot of us know that if you’re not putting a lot down in many contracts, it’s because you’re not a hundred percent sold on the home. There are a couple other anomalies to down payments that also are important when you’re talking about zero-money down loans that are available because of your service to the country.

VA loans because of your job. Doctors, firefighters, PBA loans for police officers. Here’s what you have to think of. You are entitled to the benefit, but you also have to look at it from a seller’s point of view. So if you’re using a VA loan, what we do is we’d still like you to put a down payment to hold the deal because it’s going to be more secure and it’s going to help you win. With a VA loan, you actually can get that back at closing. So there is money of yours holding the deal. In case you walk away, you’re going to lose that, and that secures the deal. And of course, you’re entitled to the benefit as a veteran but you still have to present a deal that’s attractive to the seller. So a lot of people as buyers get really into their own feelings about like, well, this is what I want. And we’re trying to tell you, we understand that, we appreciate that, but we’re trying to help you win in a competitive environment. And sometimes that does mean putting more money down.

Your money is not in jeopardy if it’s a house you love and you’re not going to do anything weird. So what are you so worried about when somebody only wants to put $10,000 down and they have $190,000 that they want to wait to closing? I’m always wondering like, well, what do you think you’re going to do in the 30 or 45 days with the money – you’re going to earn a little bit more? Sure, you’re not earning when it’s in there, but this is what it takes to win the bid. It’s just a 1% money down deposit isn’t going to hold it to closing unless the seller’s desperate. And then you’re giving yourself an opportunity to walk away.

So I really want you to think about this as a home buyer. A lot of people just aren’t going to talk about it or they’re just going to say, sure, you just do whatever you want. That’s not going to help you win deals if you’re trying to bid against other people. And honestly, if you’re the only bidder and you still only want to have 1% down to closing when you’re doing a 20% down loan, it’s not that attractive because I don’t think, I mean personally, I wouldn’t think that you love the house. So I don’t think sellers do. I think they think you’re putting as little down as possible so you can keep your options open. And that’s not good for a seller. So if you want to be a competitive buyer, trust us on what we’re telling you. And when I say us, I mean Streamlined Properties On-Market, brokered by exp Realty.

We have a big team, with more than 40 agents. My name is Jonathan Greene. This advice is to help you. It’s not to pressure you, but to do things a different way to help you win the deals that you want. Your offer’s still the same. Your down payment’s still the same. We’re just saying put more of it up upfront so you show them that you’re a ready and able and willing buyer instead of a scared buyer who just wants to put the minimum possible to hold a deal, it’s not going to hold a deal when it’s that little hope.

If you need more tips, there are actually playlists on my YouTube channel for buyers, sellers, for investing. So go to the playlists tab. Actually, I’ll probably put the home buyer’s playlist in here at the end. It’s going to be on one of these sides. Look out for it. See you soon.