Let the Facts Determine
How Much You Deposit

Question: I read that it's best to make the smallest possible down payment when buying real estate. But given the current economy, I think putting my cash into a down payment is better than letting it sit in a certificate of deposit earning very little interest -- or losing it in the stock market!

I intend to stay in my new home for many years and can cover 20% down comfortably. This approach would save me from paying private mortgage insurance premiums and make my mortgage payments smaller. What am I missing? Why would this article say to never put more than 10% down?

-- Carina, Los Angeles

Carina: I guess the old truth, "Don't believe everything you read," applies here. While it's certainly true that the less you put down, the greater your investment leverage, it isn't that simple. Homes aren't simply investments -- they're also shelter. It's important for most people to feel financially secure in their home, and for some that only comes with a big down payment.

The amount you should put down on a home purchase can only be determined after considering many factors, including how much cash you have available, whether you're buying strictly as an investment, your age and sources of income, and how important it is to have low monthly payments. When you determine how all of these factors apply to you, you'll know how much to put down.

Some people with a large income and little cash can purchase with nothing down. Others, typically older people with smaller incomes and more cash, may want to put 40% down or more to get smaller payments.

Beware of any so-called guru who says to never put more than 10% down. Common sense tells you that never is a very long time -- and there are always exceptions.

Mr. Irwin has more than 25 years' experience as a Los Angeles-area real-estate broker. He is the author of more than two dozen books about real estate and is recognized as one of the most knowledgeable writers in the real-estate field. Mr. Irwin's most recent book is "Tips and Traps When Renovating Your Home," (McGraw-Hill, 2000).

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