In this post I want to debunk the #1 myth held by many home buyers - a 20% down payment.
Yes, if you put down 20%, you avoid what is called PMI (private mortgage insurance). But PMI need not be the deal breaker. I will explain that in another post. And PMI isn’t the only thing to consider.
Say, you found a home you like for, let's use easy numbers, $500,000. You need $100,000 for your 20% down payment. But wait – you also need cash for your closing costs, plus the mortgage lender wants to see that you have something left in your bank account after the home purchase is completed.
Let's say you are a phenomenal saver, and you will have all the money you need within a year. The problem is a year from now that house you found online today, or one just like it, will be listed for more than $500,000, because the prices in our market increase. It’s what they do. A year from now you will not have saved enough, and in the meantime, you will have been renting and paying 100% interest (and helping to pay your landlord’s mortgage).
So, how much should you save? Speak with a mortgage specialist. They will not do anything to jeopardize your credit – just have a chat to get the answer to that question. (If they won’t speak with you without you providing your Social Security number, let me know.) There are numerous mortgage products that do not require 20% down and not all lenders have the same products. Go ahead and speak with a loan officer at the bank that holds your accounts and then speak to a mortgage banker who only deals in mortgages.
Having said all that, I will add that your particular situation may require 20% down. For example, a lender may require it if you want to buy investment property or a second home. But for most of us, especially first-time homebuyers, 20% down is a choice, not a requirement.
And there are VA loans for veterans that do not require any down payment – 0%!
Another very important thing you need to know, especially if you are a first-time homebuyer. There are dozens of programs that will give you money at closing. Your lender may have a program that gives you cash toward your closing costs. A number of programs are offered by SONYMA (State of New York Mortgage Agency). Some programs are grants that do not have to be repaid. Some are loans that are forgiven after a specified number of years. in a separate post I will share information about down payment assistance programs that can potentially provide you with thousands of dollars in cash at closing.
If you are waiting to save the mythical 20% down payment, we absolutely, positively need to talk.
