Should you buy a house with a small down payment?  Here's what Suze Orman thinks
Should you buy a house with a small down payment?  Here’s what Suze Orman thinks
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Suze Orman’s minimum down payment recommendation may come as a surprise.

Key points

  • Suze Orman has long recommended a 20% down payment.
  • With today’s tight housing market, Orman thinks a 10% down payment is acceptable for some people.
  • She only recommends it if you have an emergency fund, no credit card debt, and a few other financial measures in place.

Buying a house can mean saving a lot of money. Traditionally, many lenders have required a buyer to make a 20% down payment to qualify for a mortgage. This would mean that a down payment of $60,000 would be needed to purchase a $300,000 home.

Now, however, many mortgage providers are ready to lend with less money. And, in some cases, it is even possible to obtain a loan with no down payment at all.

But just because you can buy a house with a small down payment doesn’t mean it’s always a good idea. If you are considering going ahead with buying a property when you have little or no money to invest in the transaction, you will need to carefully consider whether this is the right choice.

A few tips from finance expert Suze Orman might help you decide.

Here are Suze Orman’s advice on real estate deposits

Orman has long advocated a 20% down payment. “A 20% down payment is still considered the gold standard,” she wrote on her Blog. “If you can bring that much money to the deal – and you have a strong financial position – lenders will be eager to offer you a lot.”

Orman also advised you to deposit 20% where possible to avoid private mortgage insurance (PMI). PMI is required on most loans with smaller down payments, largely because lenders are at greater risk when borrowers aren’t putting down a lot of money. The home may not be worth enough to repay the amount borrowed, and PMI protects the mortgage lender if this happens. Borrowers have to pay for it, but it doesn’t really protect them.

However, while Orman thinks a larger down payment is better both to avoid PMI costs and to ensure you get better loan terms, she acknowledged that it’s not possible in all situations. .

And, in today’s housing market where demand for properties is very high and prices have risen, she recently told NextAdvisor that she’s okay with borrowers only paying 10% if it’s is what they need to get into a house, as long as they have a few. other parts in place.

There is a caveat to consider before depositing less than 20%

Although Orman said a 10% down payment was acceptable, the financial expert added that a smaller down payment is only appropriate in certain circumstances.

According to Orman, a 10% down payment only makes sense if you:

  • Have an emergency fund with at least 12 months of saved expenses: An emergency fund reduces the chances of facing foreclosure due to an interruption of income.
  • Have no high-interest consumer debt: This means you have fewer monthly obligations (like credit card debt) to worry about.
  • Don’t reduce your savings for retirement: Orman doesn’t want you to compromise on saving for the future just to buy a house faster.
  • Have a secure source of income: It also reduces the risk of being faced with a foreclosure or having trouble paying your bills.

If you can meet those criteria and still qualify for an affordable loan, even with added PMI payments, Orman thinks you should be good at buying a home even with just 10% down.

That said, although some lenders allow even smaller down payments, it increases your risk – and usually your upfront costs – so you may want to avoid buying a home until you can find at least the recommended 10%. by Orman.

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