I think is makes lots of sense to make a low down payment only if you buy an investment property. Try to see my logic here:

You see, if you have $40,000 cash for down payment (+ emergency funds), then you could afford 40% down for a $100k house. If it is an investment property (yielding approx. 10%/yr), you would be paying off mortgage + all the interest. Simply put, your equity would be increasing at certain rate. 10% yield out of a $100k investment would mean close to $10k a year. That is all approximate and many things were not accounted for (such as management problems, APR, vacancy, and terms).

At the same time, if you make that $40k a 20% down payment, you would be able to afford a $200k home. This house, even though is is going to have a higher monthly mortgage payment because of lower down payment, would increase your equity at $20k per year. Twice as fast comparing to earlier example. Note that initial investment was still $40k! Of course, there is a bit more risk because higher monthly payments mean less liquid cash coming from the tenants. Again, many factors were not considered, but principle is shown.

But if you buy a house for your own living, please, by all means, put 40% down.


Vlad

This is a case where the right answer lies within you. The argument really can be made either way. Keeping the money liquid allows you more flexibility, but you are right in saying that there is a lot of money in interest that you would be paying with a lower down payment. By having at least 20% down, you are also avoiding the extra cost of mortgage insurance. Things you need to ask yourself are: How much money am I making by keeping that money in other investments? How do I feel about the housing market? Am I buying a house that I can easily afford to pay off faster than the prescribed loan term? Will I still be able to rebuild my savings after taking on this mortgage? Do I already have a retirement savings plan that is separate from the emergency funds I now have? The one good thing is that either way you go, putting the large down payment or having a large cash reserve places you in a better position if for some reason you have to get out of the house quickly. The only thing that makes the large down payment riskier is the case where you decide to walk away from the home and stick the lender with it. What you don’t want to do is put tons of money down and then overextend yourself on the loan payment itself.
Outside of that scenario, which hopefully is not one that you are ever forced to consider, it really comes down to where you think you have the best rate of return on your money. If the interest that you spend on the mortgage is more than offset by your expected return on that money in investments, it would make sense to put less money down. If you absolutely don’t trust riskier investments then you might be better off putting more money down and minimizing your interest costs as you suggested. There are calculators at Compare Mortgage Rates | CD Rates | Credit Cards Home Equity Loans Mortgages Best Rate Calculator Bankrate.com that can help you compare money used as down payment versus that same money at specific rates of return as an investment. Don’t forget to factor in mortgage insurance as an additional cost on the loan if you should put less than 20% down. You might end up finding that 20% is the magic number because of that factor.
Essentially, what I am saying is that you are making investment decisions. Since I am not a certified financial planner, it is not my place to give direct investment advice, but hopefully I have given you enough food for thought to come to your own conclusion.
www.debt-mgt.org

Rich people by assets and poor people buy liabilities.

Putting down a large down payment is smart for the average home buyer. It brings down your mothly obligation and lenders will give you lower interst rates. Just take a look at the payment differnce on the mortgage calculator at Home - Finance Help For The Average Joe. Keep in mind that you are surrendering opportunity costs when you put down that much money though. But like I said most people shouldnt even consider that.