What is Money Down?

Silver down refers to a down payment on a purchase in order to reduce financing costs and monthly payments. Large typical purchases that call for money are down homes or real estate and vehicles or pleasure boats. In many cases lenders will try to attract buyers by offering special offers that require "no money", but these offers usually have higher interest rates and steeper monthly payments.

The amount of money down required on any particular purchase is usually one of the key determining factors for buyers as well as monthly payments. Although it feels good to get something for very little or no money down, financing larger sums means paying more interest over the long term and endorse payments or higher monthly payments. Buyers have to choose between putting less money down and borrowing more, or placing more money down and borrowing less.

In the case of buying a first home, lenders usually prefer to have a minimum of 20% of the home value as a down payment. On a house for sale for $ 325,000 USD, the minimum would be $ 65,000 USD. This is not a hard and fast rule, just a general guideline. Assuming the buyer pays 20% down, the financing company (lender) is the balance of the buyer's account so that the seller is paid in full. Now the buyer owes the lender $ 260,000 plus fees and financial charges.

Depending on the type of loan, the buyer could spend the first few years making payments that go towards the interest that before even working out the principle. In many cases, people are turning to the property within a few years, using the buy-back price to repay the old mortgage. If the property is appreciated enough, the seller ends up with enough profits to put money on a new piece of property, usually a larger home or a house in a more pleasant neighborhood. In other words, the buyer upgrades.

While real estate is generally considered a good investment that appreciates over time, buying vehicles or pleasure boats present a different equation. New vehicles, for example, significantly lower the value of when they are driven out of the lot as they will be classified as "new" to be reclassified as "used". Therefore, a buyer tempted by a "zero of money down" deals may find that his loan is significantly higher than the value of the vehicle for the first two years or more of the loan period. If the buyer has a solid and substantial means of income and simply not cash in hand, this can be a good deal worth the compromise. But this is not always the case.

Zero Money Down offers can induce some people to buy vehicles beyond their means. Once the novelty fades, these people find themselves stuck with steep monthly payments and high financial costs that can dog tight monthly budgets. In some cases, this results in the termination of loan payments and the return of the vehicle.

In real estate there are many good reasons to put money down on the minimum property assuming a comfortable mortgage payment. It creates better cash flow and can have tax benefits. The reverse is true for vehicles and most other expensive items. In these cases it is considered preferable to put as much money down as possible. The less you finance the lower your monthly payment will be and the more you will save money in the long run.