It Depends Who You Ask — & How You Define “Conservative”
If you asked a home seller, their agent, or the Buyer’s lender, the answer you’d get would be an unequivocal “20%.”
Not only does such a Buyer have more “skin in the game” (which the lender likes), they have more equity to withstand a housing downturn (not that those ever happen).
Tradeoffs: Bigger Down Payment vs. Smaller Rainy Day Fund
Ahhh, but from the Buyer’s perspective, it makes perfect sense to think of 10% down as more conservative.
Their logic?
They have a bigger cash reserve to weather a job loss, medical emergency, or other unexpected development.
You could also make the case that it’s smart to borrow more when interest rates are low, assuming you can handle the payments.
That’s especially true for Buyers who itemize their deductions, and aren’t borrowing a gazillion dollars (see below).
Mortgage Insurance, Tax Deductions, etc.
The one big drawback to putting down less than 20%?
Lenders typically require the Buyer to pay a monthly premium for mortgage insurance.
And while there has been discussion of limiting the deductibility of mortgage interest, any such limitation is likely to apply to larger mortgages, and be phased in gradually.
Bottom line: someone getting a mortgage to buy a $200k or $300k home very likely won’t be affected.
