Dan Hubrich with Castle & Cooke Mortgage is a loan officer that I have worked with many times over the years. He is the best of the best in the industry. I’ve had him on the blog before and he’s back today. Below he’s discussing why a large down payment isn’t always the best solution when buying a home. Check it out:
When is a Lower Down Payment Better?
This month I’d like to talk about a strategy that many of my clients use to be able to afford a new home purchase right now VS waiting to buy in a year or two when conditions are better with their personal finances. For example, I hear all the time something like this: “We really want to buy a new home BUT we’re going to hold off for a while until we can save up a bigger down payment”. Or another common one is: “We’d love to buy but we have too much debt and wouldn’t be able to afford the payments”.
Well the good news is that you can accomplish all of that right now! If you own a home now, there is a very good chance that you’ve got some decent equity in it because prices have gone up significantly over the past few years. A strategy you may want to consider is to put less money down on the new home and pay off other debts instead! Doing so gives you a much bigger bang for the buck. An average car loan or credit card will have a payment of about $25-$30/month for each $1,000 in debt. In comparison, $1,000 down on a house only saves you about $5/month on the mortgage payment! So by paying off $15,000-$20,000 or so in misc. debts, you’d then be able to afford an additional $100,000 in house for the SAME total payments that you are making every month now! Not to mention the tax write offs and convenience of only making one payment.
The other piece of good news is that low down payment guidelines have expanded significantly. MOST people can even qualify for zero down now. A 620 credit score is the minimum needed and if you have over a 700 credit score we can even do zero down with NO mortgage insurance! So don’t let the fear of payment shock or the lack of a big down payment scare you. Give Melissa and myself a call and we’d be more than happy to look over your situation and give you the best advice that can help you accomplish your goals!