Saving for a down payment is often the biggest hurdle for a first-time homebuyer as median incomes, rents, and home prices all vary depending on where you live.
There is a common misconception among homebuyers that a 20% down payment is required, and it is this limiting belief that often adds months, and sometimes even years, to the home-buying process.
So, if you can purchase a home with less than a 20% down payment… why aren’t more people doing just that?
One Possible Answer: Private Mortgage Insurance (PMI)
“An insurance policy that protects the lender if you are unable to pay your mortgage. It’s a monthly fee, rolled into your mortgage payment, that is required for all conforming, conventional loans that have down payments less than 20%.
Once you’ve built equity of 20% in your home, you can cancel your PMI and remove that expense from your mortgage payment.”
As the borrower, you pay the monthly premiums for the insurance policy, and the lender is the beneficiary. The monthly cost of your PMI depends on the home’s value, the amount of your down payment, and your credit score.
Below is a table showing the difference in monthly mortgage payment for a $250,000 home with a 3% down payment and PMI vs. a 20% down payment without PMI:
The first thing you see when looking at the table above is no doubt the added $320 a month that you would be spending on your monthly mortgage cost. The second thing that should stand out is that a 20% down payment is $50,000!
If you are buying your first home, $50,000 is a large sum of money that takes discipline and sacrifice to save. Many first-time buyers save for 5-10 years before buying their homes.
To save $50,000 in 10 years, you would need to save about $420 a month. On the other hand, if you save that same $420 a month, you could afford a 3% down payment in less than a year and a half.
In a recent article by My Mortgage Insider, they explain what could happen in the market while you are waiting to save for a higher down payment:
“The time it takes to save a (larger) down payment could mean higher home prices and tougher qualifying down the road. For many buyers, it could prove much cheaper and quicker to opt for the 3% down mortgage immediately.”
The article went on to say,
“Since renters typically devote a higher percentage of their income to housing than homeowners, providing flexible down payment options can help renters with solid earnings purchase a home – and gain a fixed-rate mortgage with principal and interest payments that will not increase over the life of the loan.”
If the prospect of having to pay PMI is holding you back from buying a home today, Freddie Mac has this advice,
“It’s no doubt an added cost, but it’s enabling you to buy now and begin building equity versus waiting 5 to 10 years to build enough savings for a 20% down payment.”
Based on results of the most recent Home Price Expectation Survey, a homeowner who purchased a $250,000 home in January would gain $50,000 in equity over the next five years based on home price appreciation alone (shown below).
Bottom Line
If you have questions about whether you should buy now or wait until you’ve saved a larger down payment, meet with a professional in your area who can explain your market’s conditions and help you make the best decision for you and your family.
JUST SOLD!! 4 Bedroom Pool Home in West Stonebridge
334 Old Bridge Circle
Well maintained spacious 4 bed/3 bath pool home in the small community of West Stonebridge located on Hwy 27 opposite Championsgate golf course and with easy access to I-4 at Championsgate and Posner Park. The home has no rear neighbors and the open floor plan offers 2 master suites, spacious kitchen with breakfast nook, large living/dining room combo and the pool area features a large covered lanai ideal for Florida outdoor living. Home is currently leased – viewings by appointment only.
Furnished Vacation Home JUST SOLD in Southern Dunes
Furnished Vacation Home JUST SOLD – Beautifully presented Cape San Blas floorplan in the desirable gated golf community at Southern Dunes. With separate living/dining and family rooms this well appointed home has plenty of space for a large family or would make an amazing vacation home. Sold fully furnished, TV’s in every bedroom this popular split floor plan boasts two en-suites as well as a third full bathroom. Located on an oversized lot this property has one of the longest yards in the community ensuring the west facing resort style pool is well away from it’s rear neighbors. The mature landscaping adds further privacy to this well maintained and updated home. Enjoy the Florida lifestyle and don’t forget your tooth brush. Owner bookings convey with the sale of this home.
Orlando Retirement Villa For Sale in Outdoor Resorts
9000 US Highway 192 #733
Very nice well maintained TWO BED home in a gated lakefront 55+ community. This home offers an open floor plan, wood floors, large drywalled Living area w/computer area, dining area with lots of sunshine, great kitchen, handy stackable washer/dryer, beautiful bedroom with plenty of storage, second bedroom with a WALL of storage and a Murphy bed leading to a rear porch with more storage. This home has newer front and rear windows (2016), newer refrigerator (2015), a/c (2004), roof (2005), water heater (2012), washer/dryer (2010). You should certainly put this on your list to view. You will be impressed. Golf cart negotiable. Possession after Nov 1. No VA/FHA/USDA.
Welcome to this weeks snapshot of Central Florida Mortgage Rates! Now has never been a better time to invest your hard earned money into something that will continue to reward you, especially with ownership!
BREAKING DOWN ‘Mortgage Rate’
The mortgage rate is a primary consideration for homebuyers looking to finance a new home purchase with a mortgage loan. Other factors also involved include collateral, principal, interest, taxes and insurance. The collateral on a mortgage is the house itself, and the principal is the initial amount for the loan. Taxes and insurance vary according to the location of the home and are usually an estimated figure until the time of purchase.
Source: Investopedia.com
Your mortgage rate is determined by the lender and can be either fixed, staying the same for the term of the mortgage, or variable, fluctuating with a benchmark interest rate. A mortgage rate may vary for borrowers based on their credit profile. Here is a snap shot of the daily mortgages rates as of today, Monday, September 17, 2018. While the rates shown are not guaranteed for everyone, this gives the average buyer a good idea of what their rate should look like. We always recommend you speak with your local realtor to find the best loan program for you Orlando Home purchase. Take advantage of these mortgage rates now before it changes, contact us today!
