The Truth About Down Payments
If you’re planning to buy your first home, saving up for all the costs involved can feel daunting, especially when it comes to the down payment. That might be because you’ve heard you need to save 20% of the home’s price to put down. Well, that isn’t necessarily the case. Unless specified by your loan type or lender, it’s typically not required to put 20% down. That means you could be closer to your homebuying dream than you realize. As The Mortgage Reports says:“Although putting down 20% to avoid mortgage insurance is wise if affordable, it’s a myth that this is always necessary. In fact, most people opt for a much lower down payment.” According to the National Association of Realtors (NAR), the median down payment hasn’t been over 20% since 2005. In fact, for all homebuyers today it’s only 15%. And it’s even lower for first-time homebuyers at just 8% (see graph below): The big takeaway? You may not need to save as much as you originally thought. Learn About Resources That Can Help You Toward Your GoalAccording to Down Payment Resource, there are also over 2,000 homebuyer assistance programs in the U.S., and many of them are intended to help with down payments. Plus, there are loan options that can help too. For example, FHA loans offer down payments as low as 3.5%, while VA and USDA loans have no down payment requirements for qualified applicants. With so many resources available to help with your down payment, the best way to find what you qualify for is by consulting with your loan officer or broker. They know about local grants and loan programs that may help you out. Don’t let the misconception that you have to have 20% saved up hold you back. If you’re ready to become a homeowner, lean on the professionals to find resources that can help you make your dreams a reality. If you put your plans on hold until you’ve saved up 20%, it may actually cost you in the long run. According to U.S. Bank: “. . . there are plenty of reasons why it might not be possible. For some, waiting to save up 20% for a down payment may “cost” too much time. While you’re saving for your down payment and paying rent, the price of your future home may go up.” Home prices are expected to keep appreciating over the next 5 years – meaning your future home will likely go up in price the longer you wait. If you’re able to use these resources to buy now, that future price growth will help you build equity, rather than cost you more. Bottom LineKeep in mind that you don’t always need a 20% down payment to buy a home. If you’re looking to make a move this year, let’s connect to start the conversation about your homebuying goals. Reach me at https://linktr.ee/brianeastwoodrealtor to jumpstart your journey. It can be overwhelming, but I’m here to help.
Should You Buy Down Your Mortgage Interest Rate? | Pros and Cons
by Tom Bonetto When interest rates are high, some borrowers may choose to buy down their interest rate to lower monthly payments and make their mortgage more affordable. Buying down the interest rate means paying an extra upfront fee to get a lower rate and monthly payment. This is referred to as buying “mortgage points” or “discount points.”When interest rates are low, on the other hand, few borrowers pay higher closing costs to get a discount. But as mortgage rates rise, borrowers are more likely to weigh the pros and cons of buying points to reduce their rate. I’m linking to an article by Michele Lerner at The Mortgage Reports that explains this in depth…and I invite you to check it out. Here are a few highlights and thoughts from her article… Pros of Buying Down the Interest Rate The biggest reason to buy down your interest rate is to get a lower rate on your mortgage loan, regardless of credit score. Lower rates can save you money on both your monthly payments and total interest payments over the life of the loan. In addition: If your income is too low for you to qualify for the house you want, you may be able to afford the purchase price with a reduced interest rate and paymentIf you can convince a home seller to pay discount points for you, buying down your interest rate may help you qualify for your mortgage loanSince discount points represent prepaid mortgage interest, the cost is often tax-deductible (provided that you itemize your deductions). Ask a tax professional for more information Cons of Buying Down the Interest Rate The primary drawback when you buy down your mortgage interest rate is that it increases the upfront cost of buying a home. Your monthly payments will be lower, but you need to “break even” for those saving to be worth it. That means you should plan to keep the home loan long enough that your total savings outweigh the upfront cost of buying points. Buying mortgage points also ties up your liquid cash. You may have better uses for that money; for example, paying off high-interest credit card debt, making investments, or saving for future home improvements. You may also want to use the cash to invest in assets other than real estate for diversification, to boost a college tuition fund, or to pad your retirement account. Finally, if you’re making a down payment of less than 20% — or have less than 20% in home equity when refinancing — you’ll probably have to pay for private mortgage insurance (PMI) on a conventional loan. Thus, it could be best to use your cash for a larger down payment rather than buying points. How Does a Mortgage Buydown Work? Buying down your mortgage interest rate involves purchasing discount points (also known as “mortgage points”). You’ll pay an upfront fee to the lender at closing in exchange for a lower rate over the life of the loan. Most types of mortgage loans allow buyers to purchase discount points, including conventional, FHA, VA, and USDA loans. The rate reduction per point depends on the mortgage lender and the type of loan. However, as a rule of thumb, a mortgage point costs 1% of your loan amount and lowers your rate by about 0.25%. Let’s look at an example, using a $400,000 mortgage amount: Original quote: $400,000 mortgage at 6.25%One discount point costs $4,000One point lowers the rate by 0.25% (from 6.25% to 6.00%)Over 30 years at 6.25%, you’d pay $486,600 in total interestOver 30 years at 6%, you’d pay only $463,300 in total interestExtra upfront cost of buying points: $4,000Savings from buying points: $23,300 The actual savings and interest rate reduction will vary depending on your loan and lender. Ask your loan officer to show you a few different quotes, with and without points, so you can understand how the potential cost and savings stack up. Types of Mortgage Rate Buydowns Mortgage rate buydowns come in a wide variety of options. Here’s a summary of what you might find when you start shopping around for a mortgage rate reduction: Permanent buydown: This buydown results in the interest rate being lowered by a certain percentage for the entire duration of the mortgage.Temporary buydown: This buydowns typically results in a temporary reduction in the interest rate for a specified period, often the first few years of the mortgage term.3-2-1 buydown: This option involves a more gradual reduction in the interest rate over the initial three years of the loan, with each year representing a different interest rate tier (e.g., 3% lower in the first year, 2% in the second, and 1% in the third).Seller contributions: In some cases, sellers may offer to contribute to the buyer’s closing costs, which can be used to fund a buydown. In ConclusionMortgage rates have recently fallen from their 2023 peaks. However, they’re still much higher than a few years back so paying discount points can help you save. If you’d like to find out more and discuss the pros and cons of discount points, Reach me at https://linktr.ee/brianeastwoodrealtor to jumpstart your journey. It can be overwhelming, but I’m here to help.
What’s Really Happening with Mortgage Rates?
Are you feeling a bit unsure about what’s really happening with mortgage rates? That might be because you’ve heard someone say they’re coming down. But then you read somewhere else that they’re up again. And that may leave you scratching your head and wondering what’s true. The simplest answer is: that what you read or hear will vary based on the time frame they’re looking at. Here’s some information that can help clear up the confusion. Mortgage Rates Are Volatile by NatureMortgage rates don’t move in a straight line. There are too many factors at play for that to happen. Instead, rates bounce around because they’re impacted by things like economic conditions, decisions from the Federal Reserve, and so much more. That means they might be up one day and down the next depending on what’s going on in the economy and the world as a whole. Take a look at the graph below. It uses data from Mortgage News Daily to show the ebbs and flows in the 30-year fixed mortgage rate since last October: If you look at the graph, you’ll see a lot of peaks and valleys – some bigger than others. And when you use data like this to explain what’s happening, the story can be different based on which two points in the graph you’re comparing. For example, if you’re only looking at the beginning of this month through now, you may think mortgage rates are on the way back up. But, if you look at the latest data point and compare it to the peak in October, rates have trended down. So, what’s the right way to look at it? The Big PictureMortgage rates are always going to bounce around. It’s just how they work. So, you shouldn’t focus too much on the small, daily changes. Instead, to really understand the overall trend, zoom out and look at the big picture. When you look at the highest point (October) compared to where rates are now, you can see they’ve come down compared to last year. And if you’re looking to buy a home, this is big news. Don’t let the little blips distract you. The experts agree, overall, that the larger downward trend could continue this year.Bottom LineLet’s connect if you have any questions about what you’re reading or hearing about the housing market. Reach me at https://linktr.ee/brianeastwoodrealtor to jumpstart your journey. It can be overwhelming, but I’m here to help.
Recent Posts
