I often hear of people in their 20’s and 30’s who are ‘waiting until we can save up a down payment’ before buying a house. Often their stated goal is to ‘avoid mortgage insurance’, or to ‘keep our mortgage smaller’. Here are some other issues to consider.
1. There are down payment assistance programs that can make that down payment go to ZERO – now! That means that while you rent a substandard apartment or house and pay thousands in rent while ‘saving’, in reality the market can be moving away from you for no reason, since houses are generally appreciating, often at a rate similar to your rent increases.
2. Mortgage insurance can tax deductible, along with interest and property taxes. That means that in addition to renting an apartment, you are paying taxes you may not need to pay. Everyone’s situation is different, and we always recommend you seek professional tax advice, but the mortgage interest deduction is one of the best tax savings devices ever invented for the middle class.
3. Interest rates are at record low levels. That means you save interest on your entire mortgage, for the entire length of you loan. Avoiding mortgage insurance won’t be much of a savings if the house you want is 10% more expensive by the time you buy it (or more), and interest rates have jumped even 1% (which they are expected to do).
4. The lender may be able to help you on the mortgage insurance front. There is a program call lender paid mortgage insurance, where for a slightly higher rate, the lender can pre-pay the mortgage insurance so that you don’t have any extra mortgage insurance. So instead of trying to save 20% of the purchase ($40,000 on a $200,000 home), you might be able to get by with as little as 5% ($10,000 on that same house).
5. If you are a veteran, you may not need a down payment anyway. VA loans are ZERO down. With no mortgage insurance. If you haven’t used yours yet, do it!
There are other issues to consider as well while you are making someone else’s house payment (which is what rent is): you are not making progress on getting your own mortgage paid off; often the landlord expects you to either maintain their house, or live with it ‘as is’; you may be deferring things likes pets and children. And who are we kidding, there are not a lot of people who are truly saving at a rate that will make a difference. To save $40,000 in 3 years, it means socking away over $1,100 a month in savings. That is the house payment we are seeing some people make with zero down loans on their house.
So next time you think about buying a house ‘some day’, consider the possibility that that day could be here already!
Rick Van Wieren has been selling homes in Colorado Springs, Colorado since 1992, and be reached at 719-331-7675 or firstname.lastname@example.org.