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Apr 30, 2017

How Much Cash Do I Really Need?

I received a GREAT real estate-related question the other day that I wanted to share with my readers: “We are trying to figure out how much we’ll need for a down payment on a new house in order to give ourselves a better understanding of when we can actually afford to move… I’ve heard the general 20% rule (in order to avoid mortgage insurance), [but] do you have any resources or tools that could help us better understand how much we need to save?”

This is a common question, and the answer is not as simple as it may seem on the surface… Read my response below, and then feel free to contact me if you have follow-up questions!

In terms of down payment requirements, the minimum amount needed to get in a house can be as low as 3.5% of the purchase price (it can be even lower if you qualify for grant funds)! This will entail mortgage insurance (MI), of course, but you have to keep in mind that waiting several years to save up and avoid MI could actually backfire on you. The reason is because interest rates are extremely low right now, and if they’re significantly higher by the time you’re ready to buy, you could actually be paying more per month in interest than you might have paid in MI by buying now. In addition, the interest rate is something you’re pretty much married to for the life of the loan unless rates drop and you’re able to refinance… mortgage insurance (depending on the loan) can either be pre-paid, drop off eventually, or be refinanced out.

The best way to get a complete picture of how much you should save is to talk to an experienced lender. If you’re interested in mapping out a home-buying strategy, give me a call and I’ll be happy to help!