Does adding more to a deposit on a house make sense?

Question

Me and my wife are about to purchase our first home. We have excellent credit, but don't have a lot of money for a downpayment so we went and applied for an FHA loan (3% down). The purchase price of the home is $150,000, which means we are required to put $4,500 down (which we can) and remaining $145,500 will be financed. The seller has agreed to take care of closing costs, but we still have about $2000 that we would like to put into the house.

Should we add that to the deposit or just take the money and make upgrades within the house? Something tells that the $2000 won't make a giant dent in the mortage payments and if we used it on smart upgrades like kitchen counters or a new patio, we not only get the money back in terms of increased value/equity, but we get to enjoy living in a nicer home too.

Thanks in advance for your time.

Answer 1

This is what I would do, and this is just my opinion, but hopefully it will help.

Keep your $2K--put it in a savings account or whatever, because it's not going to make your payments much smaller. Pay a couple hundred dollars extra on your mortgage payment for the first year--that will cut down on interest costs and shorten your mortgage's life by a fairly significant amount of time. Use that $2K to help cover repairs that will come up right after you move in (because they WILL come up--especially if the house has been vacant for a while).

Also, I think you might have an unrealistic perception of how far your $2K is going to go on "increased value/equity", because materials for upgrades and repairs are expensive, unless you don't care about quality. $2K isn't going to buy you new kitchen counters unless your new kitchen is teeny, same goes for a decent patio.

Answer 2

You'll get differing opinions on this, but I think you should add it to your deposit. If you do, that's $2k on which you will pay no interest for the life of the loan, and that adds up to a lot when talking about a mortgage. Also, it immediately becomes equity in your new home, and with any luck, will grow over time at a much better rate than if you had saved in a bank.

Answer 3

$2,000 down won’t make a huge difference in your mortgage payment. Just don’t get caught up in the idea that $2,000 into your house = $2,000 in increased value. Updates don’t always impact your value as much as they do the appeal and thus salability of your house.  

Just as a piece of advice, I’d sit on the $2,000 for at least six months after you close in the event that something big breaks.  You’d be amazed how quickly you’ll have something that needs to be fixed.

Answer 4

Hold onto your $2,000 for now.  You will probably need it once you move in and find some extra things that you would like to update.

But try this:  try saving as much as you can and when you have some extra money that you can spare, then put it against the principle on your mortgage.  This will help pay off that mortgage sooner.  Always a good thing to hold your house free and clear.

Answer 5

Keep your 'extra' $2000.00, you are going to need it. There may be some surprises at closing like fees the seller could not pay per FHA rules that you may have to pony up with. You are also going to need a year of insurance pre-paid at closing and some tax and insurance escrow, soooo...

Look at your Good Faith Estimate carefully. Talk to your Broker/Loan Officer/Lender about it and find out the best guess on actual "Cash to Close" not downpayment.

Good Luck!

Answer 6

with home ownership ther are alway upgrades people want to do. Hold this money in reserves as you may need it in the future and do not do any remodeling till you have the additional cash to pay for it. So what if it takes an extra month or two to start you have the rest of your lives to complete them

Answer 7

KEEP THE 2,000.  If you put the 2,000 down your payment would be 12 less per month - and you would have no savings.

It really isn't the downpayment but the monthly payments each month that you need to worry about.  You should be spending only 28% MAX of your monthly gross income for your total housing payment.