There’s a common misconception that you need to wait until you have enough money for a 20% down payment before you can even think about purchasing a home. According to information from the National Association of REALTORS®, 5.2 million existing homes were sold in 2015.
Another 510,000 newly constructed homes were sold during the same period. If everyone waited until they had enough money in the bank for a 20% down payment, those numbers would undoubtedly be significantly lower.
While it’s true that waiting to save for a 20% down payment before you apply for a mortgage can save you money in certain respects (due to reducing the total amount of money you’re borrowing), it could actually cost you money – particularly if you’re currently renting.
Consider the following example:
- Let’s say you currently pay $2,200 for rent each month.
- You contribute roughly around $1,000 to your savings account over the same period.
- You have a good, but not great, credit history.
- You’ve got your eye on a $200,000 home, but you’ve only saved about $10,000 for a down payment – well below the typical 20%.
- Because of your credit and other factors, you’re able to lock in a mortgage interest rate of about 5%.
If you think that all of those factors mean that you need to wait to buy a home, you’re absolutely incorrect. It would take you approximately 2.8 years to save $44,230 – or about what you would need for a 20% down payment. Over that time, you’d pay $76,218 in rent that you would need if you were to purchase a home today.
Yes, you would save about $104 per month on mortgage insurance if you waited – but you’d also miss out on the $35,800 in home equity that you would build if you locked in your purchase today. Rent payments build zero equity, as you’re paying money to a landlord or property management company that you will never see again.
With considerations like pre approval first time home buyer mortgages and others, there’s no reason to wait anymore until you’ve saved the “traditional” 20% down payment. Therefore, as long as you approach things from the right perspective, there’s nothing stopping you from beginning the path to your dream (and saving a significant amount of money over your monthly rent) right away.
Buying a home is a fun and exciting time for everyone involved – or at least, it should be. At A and N Mortgage, we want to do more than just help you apply for home loan services or prequalify for mortgage loans – as your mortgage broker Chicago, we want to help make your dream of homeownership as rewarding as you always hoped it could be. Contact us today at 773-305-LOAN or sign up for our newsletter to learn more.