One of the most common questions we hear is, “Should I wait to save more money for a down-payment so I will have a lower mortgage payment?”
The quick answer is “don’t wait”. There are a number of varying factors. The borrower’s purpose and goals are the largest determining factor. Is the purchase for primary usage, a vacation home or as an investment property? The needs of one person are not the same as another borrower. Historically, home values will rise, given enough time.
Even if you are required to pay Mortgage Insurance, acquiring a property in the current mortgage environment should be a paramount goal. Although some might debate this recommendation consider looking at these factors; a) Are your local property values rising at a rate greater than your savings account, b). For the property you are interested could you save the additional down-payment plus the rate of the appreciation in a one year period, c). Would I be able to carry the proposed mortgage at current market interest rates?, d). What is the likely hood of mortgage rates rising over the next 12 months?, e). If mortgage rates rise 1% would the payment of a smaller mortgage amount be significantly lower than a mortgage payment if I purchased today and f). What are my tax implications? (consult your tax advisor).
Each of these factors/questions will vary for every borrower. There is no one answer for every person. There is no one answer for ever area of the country. Appreciation rates vary from area to area. What works in one area might be a failure in another local.
It has become more apparent to many people that the appreciation and tax benefits posed through real estate ownership, is the root to financial wealth. Real Estate had been appreciating at a staggering rate over the past decade only to fall rapidly during the economic crisis. As the economy stabilizes, values will plateau or begin to marginally increase with some blips.
It had become harder for families to realize the dream of owning a home regardless of the continued efforts of the state & federal government. In late 2004 the percentage of home ownership had risen to almost 69%, but many could not afford the home or town of their dreams. With the collapse of the market, home values became more accessible. There are loans available with low down payment’s and lender paid credits toward closing costs.
The historical national average was for most people stay in a house for 5-7 years. If these are your plans why waste your money on a fully amortizing 30 Year fixed rate loan payment vs. an Adjustable Rate Mortgage or an Interest Only Mortgage (if available). Some people believe because their neighbor or their parents had a fixed rate mortgage they must have one, but you need to look at your goals and needs.
Two River Mortgage & Investment is always available for free consultations.
In the end, only the borrower can answer which program is more beneficial. Even then, plans change over time.