We are looking to buy a home this year and have been saving our money and paying down our debt over the past couple of years so we can put as much of a down payment as possible. We have great credit, but recently ran into some unexpected expenses and our savings account has dwindled down. My wife and I are not buying more than we can afford, but we may not have 20% to put down this year. What are your thoughts on how much is enough to put down to buy a home or should we just wait till we have the 20% down?
Joe and Rebecca – Grand Junction
Joe and Rebecca,
This is a common question in today’s environment, but the answer is not cut and dry. I was speaking with a friend of mine, James Pulsipher at Fidelity Mortgage, and he was commenting on what a rare cycle we are currently in. He has seen 5 market cycles in his 20+ years working in the mortgage industry and this cycle we are currently in is unique. “Typically when rates are down, prices are up or while rates are up, prices are down, but right now we have very low rates and very affordable prices and this kind of market cycle is very unique.” So how does this unique point in time relate to the question?
Taking this unique situation into account, my recommendation would be to gather the available funds you have and purchase before one of these, or both, market conditions change. Check with your mortgage lender of choice, but there are some wonderful conventional loan products that are flexible with the amount of down payment and a new product recently introduced that is as little as 3% down for a loan amount of up to $417,000 and certainly very attractive loans in the 5,10 and 15% down categories. My thoughts are this, if you have indeed been as responsible with your finances as it appears, you will likely have the discipline to continue good financial practices after you make your purchase. As long as you can comfortably afford your monthly payment and lowering your down payment does not put you under any significant stress from a payment prospective then my recommendation would be to make the move while all market indicators are working in your favor.
Realistically, if you are purchasing a $300,000 home (for instance) and your down payment is 10% instead of 20%, your monthly payment will only increase approximately $140 at a 4% interest rate. If this puts your monthly family cash flow under ANY duress, then wait. If that increase does not have a “real” impact on your monthly payment, then move forward and try to capitalize on a market that is providing low rates with affordable and stable prices.
Great question and my guess is, when you look back on your decision you will be good with whichever route you take. The outcomes of your decisions are what you make of them, not what they make of you! Best of luck in your house hunting.
The Kimbrough Team