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Should I Wait to Put Down a Bigger Down Payment?

by Melissa Thompson
 

Should I Wait to Put Down a Bigger Down Payment? | Keeping Current Matters

Some experts are advising that first time and move-up buyers wait until they save up 20% before they move forward with their decision to purchase a home. One of the main reasons they suggest waiting is that a buyer must purchase private mortgage insurance if they have less than the 20%. That increases the monthly payment the buyer will be responsible for.

In a recent articleFreddie Mac explained what this would mean for a $200,000 house:

Difference Between a 5% and 20% Down Payment | Keeping Current Matters

However, we must look at other aspects of the purchase to see if it truly makes sense to wait.

Are you actually saving money by waiting?

CoreLogic has recently projected that home values will increase by 4.3% over the next 12 months. Let’s compare the extra cost of PMI against the projected appreciation:

PMI vs Appreciation | Keeping Current Matters

If you decide to wait until you have saved up a 20% down payment, the money you would have saved by avoiding the PMI payment could be surpassed by the additional price you eventually pay for the home. Prices are expected to increase by more than 3% each of the next five years.

Saving will also be more difficult if you are renting, as rents are also projected to increase over the next several years. Zillow Chief Economist Dr. Svenja Gudell explained in a recent report:

"Our research found that unaffordable rents are making it hard for people to save for a down payment ... There are good reasons to rent temporarily – when you move to a new city, for example – but from an affordability perspective, rents are crazy right now. If you can possibly come up with a down payment, then it's a good time to buy a home and start putting your money toward a mortgage."

Laura Kusisto of the Wall Street Journal recently agreed with Dr. Gudell:

“For some renters there may be a way out: Buy a house. Mortgages remain very affordable.”

Mortgage rates are expected to rise…

Freddie Mac is projecting that mortgage interest rates will increase by almost a full percentage point over the next 12 months. That will also impact your mortgage payment if you wait.

Bottom Line

Sit with a real restate or mortgage professional to truly understand whether you should buy now or wait until you save the 20%.

 

The Difference Between A Home’s Cost vs. Price

by Melissa Hayes Thompson

The Difference Between A Home’s Cost vs. Price | Keeping Current Matters

As a seller, you will be most concerned about ‘short term price’ – where home values are headed over the next six months. As either a first time or repeat buyer, you must not be concerned only about price but also about the ‘long term cost’ of the home.

Let us explain.

There are many factors that influence the ‘cost’ of a home. Two of the major ones are the home’s appreciation over time, and the interest rate at which a buyer can borrow the funds necessary to purchase their home. The rate at which these two factors can change is often referred to as “The Cost of Waiting”.

What will happen in 2015?

nationwide panel of over one hundred economists, real estate experts and investment & market strategists project that home values will appreciate by almost 4% by the end of 2015.

Additionally, Freddie Mac’s most recent Economic Commentary & Projections Tablepredicts that the 30-year fixed mortgage rate will appreciate to 4.5% by the end of 2015.

What Does This Mean to a Buyer?

Here is a simple demonstration of what impact these projected changes would have on the mortgage payment of a home selling for approximately $250,000 today:

Cost of Waiting | Keeping Current Matters

 

Displaying blog entries 11-12 of 12

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