When Working with buyers, one of the first questions/objections I almost always receive is in regard to the down payment. How much is necessary? The easy answer, of course, is the more, the better. Truth is that’s not always the most realistic or practical solution, however; the average home in Orlando is about 250k, and if you’re looking at the traditional 20% down payment, that’s $50,000. Quite a hefty sum. So what type of down payment do you actually need, then?
For starters, let's start with the assumption that 20% is usually best because it allows you in most cases to not be required to carry private mortgage insurance(PMI). PMI is basically the lender's way to protect themselves in case you can’t pay, and end up in foreclosure. Depending on the mortgage, it can cost you from $50-500 a month, which can be money that goes towards your actual principal on your mortgage, so 20% in many cases has always been the number to shoot for.
With that being said, there are other options that require as little as 3.5% down for FHA and even in some instances, conventional financing.
Of course, there are also the 0 down 100% financing options, and down payment assistance, in addition to many others, but for this example, let’s stick with 20% versus less.
Let’s look at an example:
Buyer A is buying a home at $250,000. Putting down 20%, so they will carry a mortgage of 200k. Buyer B is buying an identical home at $250,000, putting down 3.5%, carrying a mortgage of $241,250. Based on a 760+ credit score, with a 4.4% rate, buyer B would be paying On average, depending on Homeowners insurance, taxes, HOA and other factors, about $400 a month more.
So of course, Buyer A does better right? The principal is lower, over time, Buyer A will save money on Interest, and so on and so forth. However, if you’re getting ready to invest that difference between the $50,000 down payment and the $8,750, and that investment is going to pay off in the long run, then maybe it’s a better idea to go with the 3.5%, let your investment pay off, then use the even larger amount to pay down even more on your principal. It all depends on your specific situation.
In order to make that determination, you need to sit down with an agent who knows how to deal with these numbers to make them all make sense for you and your situation. If you’re ready, give me a call at 407.517.8693 or email me right away at isellcflhomes@gmail.com, and let’s set some time aside to figure it out!