Small vs. Large Down Payment: Which is Right for You in 2025?

One of the biggest decisions homebuyers face is how much to put down on a home. While some buyers aim for the traditional 20% down payment, others opt for a lower down payment to preserve cash flow. Both approaches have their advantages and drawbacks, and the right choice depends on your financial situation and long-term goals. Let’s explore the pros and cons of small vs. large down payments in today’s market.

The Case for a Small Down Payment

Pros:

✅ Keep More Cash on Hand – A lower down payment allows you to maintain more liquidity for emergencies, home improvements, or investments.

✅ Buy a Home Sooner – If you don’t have 20% saved, a small down payment lets you enter the market faster rather than waiting years to save more.

✅ Potential for Higher Returns – In a rising market, getting in early with a smaller down payment allows you to benefit from appreciation sooner rather than delaying your purchase.

✅ First-Time Buyer & VA Loan Benefits – Many loan programs, such as FHA (3.5% down) and VA loans (0% down for eligible veterans), make homeownership more accessible with lower initial costs.

Cons:

❌ Higher Monthly Mortgage Payments – Since you’re borrowing more, your monthly payments will be higher compared to putting more money down.

❌ Private Mortgage Insurance (PMI) – If you put down less than 20% on a conventional loan, you’ll likely need to pay PMI, which adds to your monthly costs.

❌ Less Immediate Equity – A lower down payment means you own a smaller percentage of your home upfront, which could be risky if property values decline.

The Case for a Large Down Payment

Pros:

✅ Lower Monthly Payments – A larger down payment reduces the loan amount, leading to more affordable monthly payments.

✅ No PMI on Conventional Loans – Putting down 20% or more eliminates the need for private mortgage insurance, saving you money.

✅ Better Interest Rates – Lenders often offer lower mortgage rates to buyers with higher down payments, reducing the overall cost of the loan.

✅ More Equity from the Start – With more skin in the game, you have greater financial security and a cushion in case of market downturns.

Cons:

❌ Ties Up Your Cash – A big down payment may deplete savings that could otherwise be used for investments, renovations, or emergencies.

❌ Delays Homeownership – If saving for a large down payment takes years, you might miss out on buying when prices and interest rates are more favorable.

❌ Opportunity Cost – Instead of locking money into your home, you could potentially earn better returns by investing elsewhere, such as in stocks or a retirement account.

Which Option is Best for You in 2025?

The best choice depends on your financial goals and personal circumstances. If you prioritize affordability and long-term savings, a larger down payment may be ideal. However, if you want to buy a home sooner or keep more cash on hand, a smaller down payment can be the right move.

Need help figuring out what works best for your situation? Let’s chat! As a real estate expert, I can help you navigate the homebuying process and find the best financing strategy for you.

Sources:

• Consumer Financial Protection Bureau (CFPB): www.consumerfinance.gov
• National Association of Realtors (NAR): www.nar.realtor
• Federal Housing Finance Agency (FHFA): www.fhfa.gov
• Zillow Research: www.zillow.com/research
• Freddie Mac: www.freddiemac.com
• Bankrate: www.bankrate.com

Content by Hailey Potok of The Potok Group

Contact: DRE 02024094
The Potok Group Douglas Elliman
Potokgrouprealestate@gmail.com

Sources:

LAist: Los Angeles Fires and Housing Impact
New York Post: LA Landlords Raise Rent Amid Fires
MarketWatch: Rebuilding After LA Fires and Insurance Issues
The Times: Rebuilding and Long-Term Housing Challenge.