When you buy a home, one school of thought suggests that you put down as much money as you can scrape together for the down payment. Doing so will cut down on the amount of your mortgage, which can either reduce your mortgage payments or your mortgage term. While there's nothing wrong with this idea, an alternative approach is to avoid putting down all that you've saved up. For example, if you've saved $30,000 toward a down payment, you might wish to only put down $25,000. Here are some reasons for taking this approach.
You'll Have Money To Renovate The Home
It's often desirable to renovate a home as soon as you move in. Making these changes can often be easier before you unpack. For example, if you're getting the flooring in the living room replaced, it's easier to have the work done before you set all your furniture and fixtures in this space. If you've used all of your saved-up money toward the down payment on the home, renovations will often be out of the question. This means that you'll need to begin saving up for the renovations, at which time you'll have a considerable disruption to your home because everything will be unpacked. If you set aside some of the money you'd otherwise use for your down payment, you'll be able to afford the renovations.
You'll Be Able To Manage Any Surprises
Even though a home inspection is typically thorough, there are times that your inspector won't catch everything. This can mean that you encounter an expensive project that requires immediate attention soon after you buy your home. For example, you might discover after a couple weeks in the house that the hot water heater is failing, or one of the appliances dies. If you've used all your money for the down payment, you may need to obtain a loan to replace these items. By keeping a bit of money aside, you'll give yourself some breathing room with such problems.
You'll Have Money If You Take Time Off Work
Many people who buy new homes take some time off work to get unpacked, clean the house, and make small repairs. If your job doesn't provide you with paid leave, you may find that you rack up considerable credit card debt during this week or two without income. If you save some of the money you'd otherwise put toward your down payment, you'll have money in your checking account to pay for your bills and daily expenses until you begin working again.