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As the purchase of your home gets closer, I am pretty sure your main strategy and action plan is based on how much down payment you are willing & able to give at closing.
First time home buyers first though is always the bigger the down payment the lower my monthly payment will be. And while this is true the question is whether the time it takes to save such large down payment while renting compared to its monthly savings makes most sense or not. Before getting into detail with a scenario I invite you to watch video in this section about how down payment affects your overall loan.
In my 20+ year of experience doing loans, however, I have seen how many clients’ strategies lack financial common sense. To illustrate this, consider the following real example of a property listed for sale in Houston, Harris County with 4 bedrooms & 2.5 bathrooms, 2550 sq. ft. built on 2006 which typically would rent at least for $1,600/month:
Sales Price - $180,000
Down payment - 3.5% or $6,300
Credit Score - 680 credit
FHA Interest Rate - 3.875%
Loan Monthly Payment - $831.09
Mortgage Insurance - $123.04/month
Taxes 2016 - $4,565/year or $380.42/month
Insurance estimated - $1,435/year or $119.59/month
Total monthly payment - $1,454.14
Then some clients prefer to wait 2 years to save that 20% or $36,000 renting at $1,600/month or $38,400 for 2 years’ worth of rent. Then after 2 years and once that 20% is saved the following numbers apply:
Sales Price - $197,000 (Based on Houston market trends same house went up $17,000 after 2 years)
Down payment - 20% or $39,400
Credit Score - 680 credit
Conventional Interest Rate – 4.25%
Loan Monthly Payment - $775.30
Mortgage Insurance - $0,00/month
Taxes 2016 - $4,565/year or $380.42/month
Insurance estimated - $1,435/year or $119.59/month
Total monthly payment - $1,275.31
Total savings after waiting 2 years to save $39,400 = $178.83/month. Does it make sense to wait 2 years to save for down payment? Probably not. Feel free to contact me to go over any scenario you were thinking of and would like to run to me for consideration contacting me at 281-940-2554.
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Author:
Joan Gallardo
Loan Officer NMLS 367858
Realtor TREC 0640762
Joan and Patricia guide us in the process of buying our home. They worked long hours and communicated constantly to ensure the process of our purchase went as smoothly as possible. We encounter a few hurdles along the way but with their experience, we were able to close our deal with no problems. Highly recommend to VA applicants. Follow their lead and you will be in your next home soon!!!
FROM GOOGLE: Clear Lending, con Joan y su equipo, excedió mis expectativas. Desde la rapidez del proceso al ser un solo punto de contacto como realtor y lender, el conocimiento y el nivel de negociación, es una experiencia profesional y que da certeza. En todo momento Joan estuvo para contestar dudas, la comunicación es directa y al grano y sus técnicas de negociación muestran la experience que tiene en la industria. Al final, terminamos con la propiedad que tiene todo lo que buscábamos y, no solo eso, la propiedad está evaluada en $40,000 más del precio que pagamos ($40,000 in equity right from the start!). Comprar casa no es cosa sencilla y puede ser estresante, especialmente si tienes DACA; Joan lo hizo posible. Te agradezco Joan.
Thanks Joan for helping me refinance my house at such an excellent interest rate. For anyone reading this I want to let you know Joan has worked very hard even calling me 10:00 pm to push me get him documents needed for a final approval. I am very happy you Joan worked my loan and actually we will talk soon for my new coming home. Thanks again Joan.
