WHEN PURCHASING A HOME, WHICH DOWN PAYMENT STRATEGY IS RIGHT FOR YOU?
You’ve most likely heard the rule: Save for a 20-percent down payment before you plan on purchasing a home. The logic behind saving 20 percent is solid, as it shows that you have the financial discipline and stability to save for a long-term goal. It also helps you get favorable rates from lenders.
But there can actually be financial benefits to putting down a small down payment—as low as three percent—rather than parting with so much cash up front, even if you have the money available.
The downsides of a small down payment are pretty well-known. You’ll have to pay Private Mortgage Insurance for years. You’ll also be offered a lesser loan amount than borrowers who have a 20-percent down payment, which may eliminate some homes from your search.
The national average for home appreciation is about five percent. The appreciation is independent from your home payment, so whether you put down 20 percent or three percent, the increase in equity is the same. Putting down a smaller amount also leaves more of your savings free for home repairs, upgrades, or other investment opportunities.
THE HAPPY MEDIUM
Of course, your home payment options aren’t binary. Most borrowers can find some common ground between the security of a traditional 20 percent and a small down payment.
OTHER DOWNPAYMENT OPTIONS
NO MONEY DOWN: DEPARTMENT OF VETERAN AFFAIRS
The VA guarantees purchase mortgages with no down payment required for qualified veterans, active-duty service members and certain members of the National Guard and Reserves.
TAP INTO YOUR IRA
Tax laws allow you to withdraw up to $10,000 in IRA funds to buy your first home. If you’re married and you’re both first-time buyers, you each can pull from your retirement accounts, meaning a potential $20,000 down payment.
BROWARD COUNTY HOMEBUYER PURCHASE ASSISTANCE PROGRAM
Broward County recognizes that many individuals who can afford monthly mortgage payments don’t have the required down payment for a home. The Broward County’s Homebuyer Purchase Assistance Program, used alongside the First Time Home Buyer Program, helps potential homebuyers overcome this hurdle by offering down payment assistance.
Tina Cappiello can provide some answers as you explore your financing options. CONTACT TINA TODAY!