In a recent survey, 68% of non-homeowning Americans stated
that the number one barrier standing in the way of them achieving their dreams
of homeownership was lack of a proper down payment. With all the other factors standing in the
way, such as low inventory, high prices, or rates, the fact that a down payment
is viewed as the barrier is as disheartening as it is flat out wrong. In that same survey, 65% of those surveyed
stated that they believed they need a down payment equal to or higher than 15% of
the purchase price of the home.
This last bit is just flat out false. You DO NOT NEED 15% or more for your down
payment!
Where did this misconception come from?
For the longest time, 20% was the number to hit…and the
reason for that was that with a 20% down payment, you could usually secured the
best rates, securing a fixed rate conventional loan while at the same time
avoiding PMI. PMI is Private Mortgage
Insurance, something usually placed by lenders on loans that did not meet the
80% loan to value ratio, thereby protecting the lenders newest asset in the
event of default on the loan.
This scenario is no longer the case. In fact, it is very possible that by waiting
to save a larger amount for down payment, you will end up making things more
expensive for yourself when you are ready to buy. Let’s explore the ways you can save yourself;
and, cost yourself, a lot of money.
Let’s start with the basics…obviously, we can all accept
that the higher the down payment, the better off in the long run you will
be. More down means you’re financing
less, which is a good thing. However,
when you start to count other factors, the picture gets a lot more complicated.
AS OF TODAY, January 24, 2022, the going mortgage rate for a
30 year fixed is 3.567%. Obviously,
other factors considered may change that rate, but let’s go with this for the
comparison. This rate, while still
extremely low, has actually been rising for a while…at the lowest point, you
would have been easily able to get a rate in the 2’s. It is fair to assume that over the next year
the rate will continue to rise. So let’s
say, you secure a loan with a 5% down payment, at 3.567, for the average home
here in Orlando(average price as of the Stellar MLS Sales Report for Central
Florida in December 2021 is $403k. For
sake of even numbers let’s say an even 400k. If you missed that video, click
here for an update on prices.) So your purchase price of an even $400,000,
with 5% down, at a 3.8% rate, just to give some space. I included taxes of $1,500 with an insurance
rate of $1,500 for the year. Where am I
calculating this? Click
here to be taken
to my calculator page, which will break down any and every number you need to
see when considering purchasing. With
those numbers, your mortgage would be $2,020.64(roughly the same as the average
rent here in Orlando, which is astronomically high). Let’s say you wait until you get your 15%
down payment as per the survey, on that same exact $400,000 home, with all
other numbers the same, except for the rate, which will continue to rise. So you’re financing $340,000, insurance and
taxes have stayed the same for the sake of this comparison(please note, waiting
will also get you MUCH LESS home, as prices are skyrocketing with no significant
change on the horizon). As rates are
increasing, waiting to save more will cost you in terms of rate, so let’s go
with a clean 5%. You would be paying $2,075.19.
What about PMI?
Here’s where it gets even better. There are lenders these days that can go as
low as 3.5% with no PMI. That comparison
of a 5% conventional vs the 15% is extremely realistic in that there are plenty
of lenders that can secure a 5% down with no PMI!
You have options! From FHA loans with 3.5% down, to even conventional with 3-5%, to other
private lenders with a bevy of options, you DO NOT NEED 15% to purchase your
home…
WAITING WILL COST YOU!
Let’s schedule a time to sit down and discuss your options…and
if you’re ready, but don’t know where to go to secure one of these great rates,
I have a number of wonderful lenders that I can recommend to you. Give me a call at 407.517.8693 or simply fill
out the form below, and let’s get started today!