You’ve most likely heard the rule: Save for a 20-percent down payment before you buy a home. The logic behind saving 20 percent is solid, as it shows that you have the financial discipline and stability to save for a long-term goal. It also helps you get favorable rates from lenders.
But there can actually be financial benefits to putting down a small down payment—as low as three percent—rather than parting with so much cash up front, even if you have the money available.
The downsides of a small down payment are pretty well known. You’ll have to pay Private Mortgage Insurance for years, and the lower your down payment, the more you’ll pay. You’ll also be offered a lesser loan amount than borrowers who have a 20-percent down payment, which will eliminate some homes from your search.
The national average for home appreciation is about five percent. The appreciation is independent from your home payment, so whether you put down 20 percent or three percent, the increase in equity is the same. If you’re looking at your home as an investment, putting down a smaller amount can lead to a higher return on investment, while also leaving more of your savings free for home repairs, upgrades, or other investment opportunities.
THE HAPPY MEDIUM
Of course, your home payment options aren’t binary. Most borrowers can find some common ground between the security of a traditional 20 percent and an investment-focused, small down payment. Your trusted real estate professional can provide some answers as you explore your financing options.
Mortgage Rates have increase this week, a 3rd consecutive week to show a rise.
According to Len Kiefer, Chief Economist (Freddie Mac) stated, “Rates keep climbing.” 10-Year Treasury yield has reached its highest point since 2014 which reflects a potential economic growth. Mortgage has followed the surge in Treasury yield. The 30-year mortgage rate moved 11 basis points to 4.15 percent. This is the highest since March of 2017. This could create a challenge to home buyers with higher mortgage rates and higher home price.
Freddie Mac national averages with mortgage rates for the week ending Jan. 25:
- 30-year fixed-rate mortgages: averaged 4.15 percent, with an average 0.5 point, increasing from last week’s 4.04 percent average. Last year at this time, 30-year rates averaged 4.19 percent.
- 15-year fixed-rate mortgages: averaged 3.62 percent, with an average 0.5 point, increasing from last week’s 3.49 percent average. A year ago, 15-year rates averaged 3.40 percent.
- 5-year hybrid adjustable-rate mortgages: averaged 3.52 percent, with an average 0.4 point, increasing over last week’s 3.46 percent average. A year ago, 5-year ARMs averaged 3.20 percent.
Daily Real Estate News | Friday, January 26, 2018 (Source Realtor Magazine/ NAR, Freddie Mac)