2026

1/23. How Much Do I Need to Put Down?

How Much Do I Need to Put Down? 
 Do you have plans to buy a new home this year? If so, you're probably thinking and saving for a down payment, but how much do you need? There are many loan options, and you may not need 20%.

Turning Buyers Into an LLC

Creating a separate legal entity for buying a second home is a smart way for ordinary households to protect themselves

If you’re working with a couple interested in buying a second home as an investment property, you might suggest they talk to a lawyer about setting up a limited liability corporation or other legal entity before they buy. That way, if they’re sued by someone who was on the property after they bought it, they can limit their damages and protect their personal assets against losses.

Suppose a contractor they hire makes negligent repairs to a deck and it collapses while tenants and guests are having a barbecue. The judgment in a case like this could easily exceed the equity the owners have in the property and even the coverage limits on their insurance policy.

Or perhaps they rent the property to a person who owns a dog not covered in a typical landlord policy and the dog bites someone on the property. State Farm, for example, determines risk based on a dog's bite history not its breed. The company paid $121 million in dog bite claims in 2016 at an average of $33,000 a claim. A claim of that amount might exceed the equity the homeowners have in their property. That could make their personal assets vulnerable to the judgment.

Or let’s say the carbon monoxide detector is faulty and the property has a 20-year-old furnace that develops cracks, releasing gas indoors. Tragically, a family of four staying in the property is killed. The owners could face four wrongful death actions caused by negligence.

Gravity of Risk

These are rare occurrences, to be sure, but they point to the gravity of risks that investment property owners can face. In fact, the scenarios illustrate one of the main differences between real estate and other types of investments like stocks or bonds: real estate can carry risks that exceed the investment in the asset.

Of course, an owner’s first layer of protection is insurance, but owners might fail to recognize that their losses can exceed coverage limits. Or there may be exceptions or carve-outs in the coverage that exclude or limit the losses. These gaps in coverage might expose the owner to unlimited liability. In today’s litigious world, $100,000, $300,000, or even $500,000 liability coverage may be inadequate. Also, owners converting their home to an investment property might not think to take out landlord or vacant property coverage.

To get the right amount of protection, buyers should strongly consider a personal liability umbrella policy with $1 million to $2 million in coverage. But they should also consider forming and running a corporation or LLC. The type of entity they can form varies and is governed by state law, but nearly all states allow incorporated entities like limited liability corporations, partnerships, C corporations, and subchapter S corporations.

Pricing Considerations

Deciding which type of entity to set up and how to structure it should be done with advice of counsel. The process may not be expensive. Depending on the area and particularities of the household, the legal work can be done for a few hundred dollars. There are also do-it-yourself forms online, but self-help isn’t recommended; these entities, whether for  your own investments or your clients’, have to be set up correctly to get the maximum protection.

Investing in real estate can be a smart decision. The right property can outperform other investment vehicles. But because real estate investment comes with potential pitfalls, it makes sense to have sufficient insurance and for investors to consider setting up an LLC or other type of entity to separate their liability from their personal assets.

Remodeling? Recoup Your Investment When You Sell

Before you pour your savings into a new kitchen and a rainforest shower for the master, think about whether or not you'll be able to recoup your investment when it comes time to sell. 

If you have equity in your home, you can make improvements, but don't go over the limit of what other buyers can spend for a home similar to yours in your neighborhood. 

While it's tempting to make your home more beautiful, you have to consider the rest of your neighborhood. If most residences in your neighborhood are three-bedroom single-story homes, buyers are unlikely to shop in your area for two-story four-bedroom homes. 

Buyers want to shop for a home where there is the most selection of homes that fit their criteria. If they want a swimming pool, they're going to look in neighborhoods where many homes have pools. They won't be aware of your home if you have the only pool in your subdivision.  

That's why over-improving for the neighborhood is a bad idea. Not only will you not get your money back for some updates, your home my be harder to sell because of them.  

Another reason buyers don't tend to pay as much for updates as you might think is broad differences in taste. Your updates may include choices your buyer wouldn't have made because of several reasons:  

You only improved one or two rooms, leaving the rest of the home looking unfinished. 

Your updates were too radical, such as cold minimalism in a traditional setting. 

Your updates masked a problem but didn't solve it, such as a kitchen that's too small. If the kitchen is still too small after you've put in granite counters, don't expect buyers to care. 

You failed to do necessary repairs and updates that were less visible than the new décor but buyers noticed anyway. 

Your updates are beautiful but require a lot of cost and upkeep. 

Buyers want to make a home their own, and don't want to be distracted or confused by design statements that they don't agree with. Enjoy your home while you can, but make sure your new look can be easily depersonalized when it comes time to sell. 

Don't expect to set a listing price based on what you've put into your home no matter how long you own it. Your home will be worth market value no matter when you sell, whatever the value is for that point in time. 

All the improvements in the world won't change that basic fact. Your home and the improvements you make are only worth what willing buyers say they will pay. 

Before you begin renovations, talk to your Realtor and your lender. They will help you develop a reasonable plan for updates that will add value to your home. 

WHY SHOULD I HIRE A REAL ESTATE AGENT ?

Mortgage Pre-Qualification vs Pre-Approval

Two often confused terms in the home buying process are a mortgage loan pre-qualification and a home loan pre-approval. Even some loan officers and real estate agents will use the terms incorrectly, so here's what you really need to know about each one.

Pre-Qualification

A mortgage loan pre-qualification is simply an estimate of how much house you can afford and how much money a lender would be willing to loan you. The best time to get a pre-qualification is right at the beginning of your home buying process, before you even start looking at houses. This involves either sitting down with a lender or talking with one on the phone, and providing information on your income, assets, debts, and a potential down payment amount. The lender would then provide you with a ballpark figure in writing of how much he thinks you could afford to pay for a monthly mortgage. There is no cost involved and there is no commitment on either side. This estimate is just helpful in helping you figure out if buying a home is a viable option, and if so, what your price range would probably be.

Pre-approval

Getting pre-approved means that you have a tentative commitment from a specific lender for mortgage funding. In this case, you provide a home loan lender with actual documentation of your income, assets, and debts. This process typically requires an application fee as well, since the bank will run a credit check and work to verify all your employment and financial information. Once you are approved, the lender will give you a letter of commitment, stating how much money her bank is willing to loan you for a home purchase. With a pre-approval in hand you can start your shopping - real estate agents and sellers will take you much more seriously when they see you have your mortgage funding in place.

It is important to understand, however, that even a pre-approval is not a guarantee that you will be approved for a mortgage loan.  The funding will only be given when the property appraisal, title search, and other verifications check out on the home you have chosen to buy.  Neither is the pre-approval binding; you can still obtain a mortgage from a different lender. If you do stick with the same company that pre-approved you though, the application process will be much shorter once you find the right house.

Real Estate Info

An Appraisal is the same as a Home Inspection While both an appraisal and home inspection provide important information to all parties, the two are not the same. An appraisal is done to determine the value of a property, generally for the benefit of a lender. The appraiser will inspect a property for improvements and deficiencies but only to determine the overall value of a property. A home inspection, on the other hand, is an inspection, but its main purpose is to look at the 'guts' of a property, assessing the overall condition, and inspecting the major systems, appliances and structure to determine the shape of a property. The appraisal is done to determine the value of a property; a home inspection (which isn't required) is done to determine the overall health of a property.

Appraisers Use a Formula to Determine the Value of a Property The way in which appraisers determine the value of a property is very detailed. An appraiser will analyze all aspects of a property: location, condition, size, proximity to amenities and other facilities, and s/he will also consider the recent sale prices of comparable properties in the area. Other items that are considered in the appraisal: number of bedrooms and bathrooms and the floor plan functionality. The appraiser does a visual and physical inspection of the interior and exterior of the property. S/he will take into consideration the type of flooring in a home; the materials used in the kitchens, bathrooms, and other rooms; the siding and any other recent upgrades. An appraiser will also consider things that need to be repaired, and other miscellaneous items. Far from a specific formula, appraisers use a lot of data to determine the appraised value of a property and an appraisal can take a number of hours to complete depending on the size of a house and complexity of the property.

SELLING A FOR SALE BY OWNER

In today’s market, with home prices rising and a lack of inventory, some homeowners may consider trying to sell their home on their own, known in the industry as a For Sale by Owner (FSBO). There are several reasons why this might not be a good idea for the vast majority of sellers.

Here are the top five reasons:

1. Exposure to Prospective Buyers

Recent studies have shown that 95% of buyers search online for a home. That is in comparison to only 17% looking at print newspaper ads. Most real estate agents have an internet strategy to promote the sale of your home. Do you?

2. Results Come from the Internet

Where did buyers find the home they actually purchased?

• 49% on the internet
• 31% from a Real Estate Agent
• 7% from a yard sign
• 1% from newspapers

The days of selling your house by just putting up a sign and putting it in the paper are long gone. Having a strong internet strategy is crucial.

3. There Are Too Many People to Negotiate With

Here is a list of some of the people with whom you must be prepared to negotiate if you decide to For Sale By Owner:

• The buyer who wants the best deal possible
• The buyer’s agent who solely represents the best interest of the buyer
• The buyer’s attorney (in some parts of the country)
• The home inspection companies, which work for the buyer and will almost always find some problems with the house
• The appraiser if there is a question of value

4. FSBOing Has Become More And More Difficult

The paperwork involved in selling and buying a home has increased dramatically as industry disclosures and regulations have become mandatory. This is one of the reasons that the percentage of people FSBOing has dropped from 19% to 8% over the last 20+ years.

The 8% share represents the lowest recorded figure since NAR began collecting data in 1981.

5. You Net More Money When Using an Agent

Many homeowners believe that they will save the real estate commission by selling on their own. Realize that the main reason buyers look at FSBOs is because they also believe they can save the real estate agent’s commission. The seller and buyer can’t both save the commission.

A study by Collateral Analytics revealed that FSBOs don’t actually save anything, and in some cases, may be costing themselves more, by not listing with an agent. One of the main reasons for the price difference at the time of sale is: 

“Properties listed with a broker that is a member of the local MLS will be listed online with all other participating broker websites, marketing the home to a much larger buyer population. And those MLS properties generally offer compensation to agents who represent buyers, incentivizing them to show and sell the property and again potentially enlarging the buyer pool.”

If more buyers see a home, the greater the chances are that there could be a bidding war for the property. The study showed that the difference in price between comparable homes of size and location is currently at an average of 6% this year.

Why would you choose to list on your own and manage the entire transaction when you can hire an agent and not have to pay anything more?

Bottom Line

Before you decide to take on the challenges of selling your house on your own, sit with a real estate professional in your marketplace and see what they have to offer.