Is it better to have a large down payment or better credit?
We can either pay off debt with tax return and have no debt and better credit but small down payment going into buying, or we can have so-so credit with debt and larger down payment.
Answers | 5
You can think of credit as something that reflects your "fiscal personality" and you always want to make a good impression. By that I mean your credit history and credit score give lenders a good idea of how you handle your finances and whether or not you are a safe risk to take. That said, because there are numerous low-down-payment mortgage options available for most home buyers, my advice to any client of mine would be to preserve their credit rating and maintain a favorable credit history. I hope that helps you in deciding on an option.
If you want a "better" answer, we need to dig deeper into the question. Lower credit score generally translates into a higher down payment and/or higher interest rate. The inverse also applies - higher down payment generally means a lower rate. There are also other variable to consider.
Now let's go deeper.;
1). Can you afford the payments?
3). Where else can you put your $$ with a higher ROI?
As an example,;
Home price $500K
Put 20% down= $100K
Age after 30 yrs of pmts= 70
Using a 30 yr fixed rate of 4.5%.. PMT + $2026.74/month. (P & I only)
Total of payments (30 months or 360 pmts) =$729,626.40
As an Investment Manager, here is another option:
Put 10% down=$50K
Invest the other $50K and in 15 yrs (or less) it become $400K.
Pay off the mortgage on the house in FULL.
Now you pay yourself $2,280.08 (using conservative terms as above but using $50K down payment) for the remaining 15 yrs = $410,407.20
Now, after 30 yrs you have a house paid in full plus an extra $410,407.20 in your Owner's Equity pocket.
Which is "better" for you?
On debt, Our general position is for our clients to be in a position to pay off all their debt within 3 yrs using cash flows. Our focus is on efficient debt management.
We invite you to contact us directly to discuss further. No obligation.
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