Today I’m joined by Brian Maier from Mortgage Box to discuss and dispel some misconceptions that people have regarding down payments.
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Brian Maier from Mortgage Box finds it surprising how many people think that they need to put 20% down on a home. If they’re saving up for that long, it could be years before they have enough, and they’ll have missed a lot of opportunities in that time. That’s not to mention the appreciation rate; a home that sold at $200,000 two years ago is selling for over $250,000 today. We can’t accurately predict future appreciation, but based on past appreciation, home prices are going up faster than people are able to save for.
The fact is that you don’t need to put 20% down to buy a home. In fact, the majority of Brian’s borrowers put way less than that down. There are programs for first-time homebuyers and for those who are simply buying a primary residence that allow for a down payment as small as 3% out of pocket. He’s also able to get his borrowers lender credits, which help to cover closing costs.
"If you’re looking for a loan program that will allow to you put less than 20% down (or nothing at all), your first step is to align yourself with a great lender."
In essence, you could get into a $200,000 house with only $6,000. That down payment could also be entirely comprised of gift money from a family member.
Other programs like the VA loan don’t require a down payment at all. To qualify for the VA loan, however, you do need to be either in active duty in the military or a veteran. Unlike the FHA and conventional loans, the VA loan doesn’t require you to have monthly mortgage insurance when you put less than 20% down on a home. Another nice feature of the VA loan is the option to do jumbo VA loans, which allow you to borrow up to $1 million and you don’t even have to stay within the conforming loan amounts, which is $484,000 in Clark County. However, once you exceed the conforming loan amounts, the VA loan will no longer be zero-down and you’ll be expected to put a little bit down.
In addition to the rate of appreciation, another thing working against those who are saving up for a down payment is the general trend of interest rates. We’ve had a 10-year bull market run, and over the next few years, rates are projected to increase. By waiting to save for a down payment, it may actually end up costing you a lot more down the road, with home prices and interest rates both on the rise. Those two factors combined could end up pricing you out of the market altogether, so it’s better to put less money down to get into a house, which allows you to budget your payments and ride your home’s appreciation over time.
If you have any questions about this or other real estate topics, don’t hesitate to reach out to me at the Ravago Group.