How Much Do I Need for a Down Payment?
Many potential first time home buyers are under the impression that a 20% down payment is necessary to buy a home and have disqualified themselves before they have even talked to a lender. This is a terrible misconception, according to the National Association of Realtors’ 61% of first-time home buyers purchased their homes with down payments below 6% from October 2016 through November 2017. In 2018 the down payment amount increased slightly to 7%. This makes buying a home much more affordable for buyers since they are not required to have such a large amount saved.
Is it Worth It?
Only having to put down 6-7% does sound intriguing when it comes to purchasing a home, especially with a strong rental market with increasing monthly rents. But should you take advantage of a low down payment instead of the traditional 20% benchmark? The first pro to having 20% down on a house is the less you borrow the less interest you will pay. Lenders also look at buyers who put down 20% a safer bet than someone less than 20%; this may result in you getting a better interest rate than if you put down 6%. The next variable to consider is that when you purchase a home with less than 20% down, the lender requires PMI (private mortgage insurance). This payment is added to your monthly mortgage and you pay it until you have 20% equity in your home. However, if you can qualify for a low interest rate then the PMI may sting less and make buying a home with less than 20% down a good option for you. Another factor to consider if a small down payment is a good option for you is to compare what your mortgage payment would be versus what you are paying in rent currently and what you can expect to pay in rent over the next 5 years.
If you are thinking of purchasing a home as a first-time home buyer it would be a good idea to talk to a lender to see what your options are. You may be surprised with the programs or loans available to you which could lead to you and your family being in a home sooner than you expect!
If you are a first-time home buyer, we would love to help you find the perfect home for you and your family. Don’t hesitate to contact our team! 530-343-7085 or visit our website www.billchancerealty.com