If I buy a home, should I make a tiny down payment and invest the difference?
— Chris B., Livonia, Mich.

With 30-year mortgage rates around 4%, that's tempting. In place of a big down payment, you could write a small check, borrow the max, and invest your unused down payment funds in the hope of earning more than the interest you're paying.

There are some catches, though. A 3.5% down payment (with an FHA loan) in place of a 20% down payment will cost you thousands extra in interest and insurance. Plus, beating your 4% cost of funds is no slam dunk: "A lot of people invest the extra money in a risky asset," says Natalie Pine, a planner in College Station, Texas, "and they lose a lot." Put down 20% and you'll pay hundreds less each month on your mortgage, leaving you free to invest the extra cash or hang on to it for everyday expenses.

—Kate Ashford

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