You have money saved, but youre getting a 0-down mortgage Whats your best move?

A zero-down payment might sound like a product designed for someone who hasn’t saved enough to buy a home.But having cash in the bank does not necessarily mean you should hand it over as a down payment.The reason is that cash and home equity do two different jobs.

One is your liquidity buffer and the other is the accumulating value of your most valuable asset.Money in a savings account can cover a broken furnace, a job loss or another expense tomorrow.

Money used for a down payment increases your home equity, but getting that money out is often a process and can be expensive, as you either have to sell your home or borrow against its value.This is important for buyers who have accumulated savings but qualify for a zero-down mortgage, such as a VA or USDA loan.As a rule of thumb, the CFPB recommends subtracting money you may need for other priorities, including moving costs, possible renovations, furniture and an emergency fund before deciding how much cash is actually available for a down payment.If at all possible, you want to avoid being house rich and cash poor.

Chris Birk, Vice President of Mortgage Insight at Veterans United Home Loans told the Post, “There’s no one-size-fits-all answer here, and I wouldn’t encourage anyone to spend thousands of dollars buying down their interest rate without first making sure the math works in their favor.”The typical closing costs for a zero-down mortgage run from 2% to 5% of the purchase price, excluding the down payment.On a $400,000 home, that would equal roughly $8,000 to $20,000, although the actual bill depends on the lender, loan type, property and location.A larger down payment lowers the loan-to-value ratio, or LTV, which compares the amount borrowed with the value of the property.

Lenders often use LTV to set interest rates and determine whether mortgage insurance is required.A lower LTV generally gets you a better rate, and borrowers with higher LTV ratios can face higher borrowing costs.Putting less...