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.
Looking for a spacious family home with no rear neighbors in a gated community? Located in the Marbella North community just off HWY 27 this would make a great primary residence or vacation home. At the front of the home is a formal living / dining room with lots of natural light and access to the staircase and the kitchen / family room combo to the rear of the home. A fully equipped kitchen with breakfast bar and closet pantry leads to the family room with double sliding patio doors and a great view over the south facing inground pool and spa to the large retention area beyond. A good sized master bedroom benefits from large double sliding patio doors with direct access to the pool area and an en-suite with his and her sinks, separate tub and shower stall. A half bathroom with access to the pool deck completes the downstairs accommodation. Upstairs you will find four additional bedrooms sharing two house bathrooms – great layout with no wasted space. With new carpets in all the bedrooms and tile in the main living areas you just need to pick your favorite color scheme and make this place home.
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!
Here’s what you’ve been waiting for….a LARGE 2014 3 bed/2 bath home with almost as much square footage as the 4 beds in the community. This is a D R Horton’s upgraded Classic model. As you enter the home, you feel how open it is with the 7′ wide hallway & 18″ ceramic tile throughout. The open floor plan has a large living room/dining room combined and leads to the breakfast room/kitchen combination with stainless steel appliances. The master bedroom (13×17) can handle a lot of furniture and the master bath (8×12) has a great tub w/separate walk-in shower. Two guest bedrooms are separated by a bath with tub/shower (nice tub surround). The laundry (6×8) comes with the washer & dryer, has a large closet pantry leading to the two car garage. This home offers a screened room (9×13), a great vinyl fenced back yard, and a 10×12 tied down/hurricane proof storage shed. And it gets even better as the HOA fee is only $261/YEAR. Better hurry!
Fla.’s home sales, new listings, median prices up in July
ORLANDO, Fla. – Aug. 22, 2018 – Florida’s housing market reported more sales, rising median prices and more new listingsin July compared to a year ago, though for-sale inventory remains constrained in many markets, according to the latest housing data released by Florida Realtors®. Sales of single-family homes statewide totaled 25,488 last month, up 3.8 percent compared to July 2017.
“In a positive sign for Florida’s housing market and potential buyers, we saw a modest increase in new listings in July,” says 2018 Florida Realtors President Christine Hansen, broker-owner with Century 21 Hansen Realty in Fort Lauderdale. “New listings for existing single-family homes rose 3.1 percent compared to a year ago and new listings for condo-townhouse properties increased 2 percent from last July. Meanwhile, home sellers received more of their original asking price at the closing table. Sellers of existing single-family homes received 96.7 percent (median percentage) of their original listing price, while those selling condo-townhouse properties received 95.3 percent (median percentage).”
July was the 79th month in a row that the statewide median sales prices for both single-family homes and condo-townhouse properties rose year-over-year. The statewide median sales price for single-family existing homes was $255,000, up 6.3 percent from the previous year, according to data from Florida Realtors Research Department in partnership with local Realtor boards/associations. The statewide median price for condo-townhouse units in July was $180,000, up 5.3 percent over the year-ago figure. The median is the midpoint; half the homes sold for more, half for less.
According to the National Association of Realtors® (NAR), the national median sales price for existing single-family homesin June 2018 was $279,300, up 5.2 percent from the previous year; the national median existing condo price was $258,100. In California, the statewide median sales price for single-family existing homes in June was $602,760; in Massachusetts, it was $430,000; in Maryland, it was $313,254; and in New York, it was $280,000.
Looking at Florida’s condo-townhouse market, statewide closed sales totaled 10,032 last month, up 8.5 percent compared to a year ago. Closed sales data reflected dwindling short sales and foreclosures in July: Short sales for condo-townhouse properties dropped 33 percent and foreclosures fell 26.5 percent year-to-year; while short sales for single-family homes declined 41.6 percent and foreclosures fell 38.3 percent year-to-year. Closed sales may occur from 30- to 90-plus days after sales contracts are written.
“We are continuing to see signs that the low-inventory situation impacting the single-family home market has finally stopped getting worse, though it remains constrained,” says Florida Realtors Chief Economist Dr. Brad O’Connor. “As of the end of July, there were 3.9-months’ supply of single-family inventory in Florida, marking the third straight month where there was no year-over-year change in this metric. We’re still squarely in seller’s market territory, though, and we’re going to need new single-family construction to ramp up even more.
“Half of Florida’s 4.3 million millennials are now in their thirties, and while their employment opportunities have improved drastically in recent years, the state’s housing shortage is locking them out of their best opportunity to build lasting wealth during their prime working years. In the short run, their best bet may be to consider ownership of a multifamily unit like a condo or townhouse, where inventory levels are not nearly as tight in most areas around the state. Statewide, there’s currently a 5.3-months’ supply in the condo-townhouse category, indicating a much more balanced market than what we have with single-family homes.”
According to Freddie Mac, the interest rate for a 30-year fixed-rate mortgage averaged 4.53 percent in July 2018, up from the 3.97 percent averaged during the same month a year earlier.
To see the full statewide housing activity reports, go to Florida Realtors Research & Statistics section on floridarealtors.org. Realtors also have access to local market stats (password protected) on Florida Realtors website.
