What I’d Do With My Down Payment Money If I Were Buying a Home Right Now
You’ve probably heard this advice: put down as much as you can.
And I understand why. A bigger down payment means borrowing less, which can lower your monthly payment and reduce your interest costs.
But before I committed my savings, I’d want to know what that decision would leave me with after closing.
Would I still have money for moving expenses? A repair? Something unexpected a month after getting the keys?
The money you’ve saved can serve several purposes when you buy a home. Here are four things I’d check before deciding where mine should go.
1. I’d price out two down payments
First, I’d ask for two versions of the numbers:
One using the minimum down payment allowed by a loan program I qualify for.
One using the larger down payment I’m considering.
For each, I’d compare the estimated monthly payment, the total cash needed to close, and the savings I’d have left afterward.
I’d also make sure the payment includes property taxes, homeowners insurance, and any required mortgage insurance. Comparing only principal and interest can leave out a meaningful part of the monthly expense.
A larger down payment might make the payment more comfortable. A smaller one might leave me with a cushion I’d rather keep.
There’s a tradeoff either way. The Consumer Financial Protection Bureau’s down payment guide recommends accounting for closing costs, moving expenses, and emergency savings before deciding how much to put down.
I’d want to see that tradeoff in dollars before choosing.
2. I’d compare a price cut with a rate buydown
If there’s room to negotiate with the seller, I’d ask my mortgage broker to compare two possibilities: a lower purchase price or an equivalent seller credit toward a rate buydown.
A price reduction can reduce how much I need to borrow. Paying discount points can lower the interest rate on the loan.
Which would reduce my monthly payment more? I’d want actual quotes to answer that.
I’d also ask whether the buydown is permanent or temporary. A temporary buydown provides payment relief for a limited period, so I’d need to understand the payment after that relief ends.
Then I’d compare the monthly savings, cash needed at closing, and longer-term costs of both options.
3. I’d ask about seller credits
A lower price is one thing to negotiate. Help with closing costs is another.
Seller credits can cover eligible closing expenses or help fund an allowable rate buydown. Covering those expenses could let me keep more of my own savings.
But I’d check the rules before building an offer around a credit. The amount allowed depends on the loan program and, in some cases, the down payment and property use. Credits also have to fit the eligible costs. For example, Fannie Mae’s guidelines don’t allow seller contributions to cover the buyer’s down payment.
I’d have my mortgage broker and real estate agent coordinate so the request fits both the financing and the negotiation.
4. I’d check the break-even point before paying for a lower rate
For a permanent rate buydown, I’d ask how long the monthly savings would take to recover the upfront cost.
Here’s a hypothetical example: if discount points cost an additional $3,000 and save $100 a month, the simple break-even point is 30 months.
That gives me a starting point. I’d still want to compare the overall costs over the time I expect to keep the loan.
And that’s the key: how long I keep the loan, not just the house. Refinancing replaces the mortgage, even if I stay put.
The CFPB recommends comparing costs across different timeframes when deciding whether to pay points. I’d run those numbers without assuming a future refinance will be available.
Before you commit your savings, compare your options
You worked hard to save that money. It deserves a little planning before you spend it.
I’d want a payment I can live with, cash left after closing, and a clear understanding of what each option costs