Finally deciding to invest in a home is one of the most important decisions you can make—after all, it can completely upend your budget, and you want to make sure that you’re able to still afford your mortgage as the months and years go by. According to a recent survey by Freddie Mac, nearly a third of prospective homebuyers believe that they need to put down a minimum of 20 percent in order to buy a home, but according to Zillow’s Senior Economist Jeff Tucker, this is a myth that too many people allow to stop their dreams.
“There isn’t any standard percentage when it comes to a down payment,” he explains. “Typically, buyers putting down less than 20 percent are required to pay Private Mortgage Insurance (PMI) monthly until they build up 20 percent equity in their home.” Basically, what this means is, for homeowners who put less than 20 percent down, PMI is an added insurance policy that protects the lender if you are unable to pay your mortgage. It’s important to also note that PMI is not the same thing as homeowner's insurance: It's a monthly fee rolled into your mortgage payment. While the amount you pay for PMI can vary, you can expect to pay approximately between $30 and $70 per month for every $100,000 borrowed.
To put the numbers into context, Tucker says to take into account a $300,000 home with today’s rates and a 30-year rate fixed mortgage. “With a 20 percent down payment and today's rates, we'd expect about a $975 principal and interest payment,” he says. “With a 3 percent down payment and today's rates, we'd expect about $1213 principal and interest payment, plus $238 in PMI.” The difference adds up over the months until you get to 20 percent equity.
Still, that doesn’t mean you need to wait just because you don’t have the amount you think you need for a new house. “While PMI is an initial added cost, it enables you to buy now and begin building equity versus waiting five to 10 years to build enough savings for a 20 percent down payment,” explains Tucker. In the example he listed, for instance, it’s $1450 per month versus $975, but the difference here is 17 percentage points of down payment—equivalent to about $51,000. “Not everyone has an extra $51,000 sitting around to make such a big down payment,” he adds.
Down payments can be extremely individual in this sense, so if you do have the 20 percent and can pay your mortgage comfortably over time, it makes sense to do so. However, if you’re struggling to save up right now, you may not want to wait. After all, the recession in COVID has created very low interest rates, and you would want to take advantage of those now, before they go up again. If you wait too long, it’s also likely the cost of the home you want will increase, in which case you’d have to pay more over a period of time regardless.
“An online mortgage calculator is a good starting point when deciding how much you can afford, but you’ll want to take into account the hidden costs of homeownership too,” says Tucker. “Zillow research finds those hidden costs (property tax, insurance, maintenance) add up to about $9,000 a year on a typical home—about $750 a month—so you should factor that into what you can afford.”
The bottom line? “I think if someone needs the space and expects to be in the same area for a long time—basically is otherwise in a position to be buying a house now—then they really shouldn't let that 20 percent down payment target stand in their way,” Tucker concludes.
Ready to take the next step? Here's how to qualify for a mortgage and the five most popular home-buying loans.
Follow House Beautiful on Instagram.
This content is created and maintained by a third party, and imported onto this page to help users provide their email addresses. You may be able to find more information about this and similar content at piano.io
"payment" - Google News
February 12, 2021 at 08:26AM
https://ift.tt/3rJ4xbq
How Much Money You Need for a Down Payment on a House - HouseBeautiful.com
"payment" - Google News
https://ift.tt/3bV4HFe
https://ift.tt/2VYfp89
Bagikan Berita Ini
0 Response to "How Much Money You Need for a Down Payment on a House - HouseBeautiful.com"
Post a Comment