Welcome to Ask Clark, a column designed to answer your financial questions by money expert Clark Howard.
Ask Clark: If I Buy a Home for $300K, Should I Use $100K as a Large Down Payment?
Thomas from Florida asks: “If I wish to purchase a home for $300,000 and I have $100K, is it better to a) borrow $200K and add it to my $100K, or (b) borrow the full $300K and use the $100K as a large down payment?”
Clark’s Take on Whether You Should Opt for a Large Down Payment to Purchase a Home
Clark says: “I’d really love for you to have as large a down payment as works for you, then use it as a way to take out a shorter mortgage if you can afford it.”
“I am obsessed with 15-year mortgages,” he says. “The 15-year loan … gets you building equity right away, whereas with a 30-year loan, you build no meaningful equity for a long, long time.”
Clark says another advantage of getting a 15-year mortgage is that lenders consider you to be a much less risky borrower compared to those who take out a 30-year mortgage.
A 15-year mortgage “means that you instantly are very secure in that property versus somebody who puts down little or no down payment,” Clark adds. “If something happens in their lives and they need to bolt from that property, they may be upside down: owing more on it than what they’ll get from it after real estate commissions. So I am a big advocate for large down payments, and I would go for it.”
For more information on purchasing property, read these easy steps on how to buy a home.
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