“The finance books all agree that you should finance as much as possible, if the rates are reasonable”
There are 2 different points here and I want to be clear where I stand. I am not suggesting somone increase the amount of home they can buy by seeking to take on a larger amount of leverage. What I am suggesting is that if I can afford 1 Million in property rather than putting 350K as a down payment I am only going to put the 200K down.
Why? While I might have a slighly higher payment I have a substantially higher amount of cash. This cash provides far more safety in an unforseen circumstance that my slightly higher payment.
Therefore I would argue that your perception of having less risk with the lower payment is an incorrect assesment.
The reality is that all people have reoccurring expenses. this comes in the form of utilities, food, taxes etc. Cash on hand allows me to make these payments in a worst case scenario while at the saem time providing me with liquidity in the event that the deal of the century presents itself.
I will once again go back to my Katrina example. Who was better off after their homes had been destroyed. The guy with the lower payment and no home and little cash or the guy with the 150K because he elected to put the 20% down instead of the 35%. Seems to me that the guy who put 35% might have thought he was taking less risk when in fact he was taking on more risk. Your thoughts
