Reasons You Might Consider Making a Lower Down Payment on a Plano Home
When it comes to buying a house in Plano, or most other locations for that matter, the traditional down payment for a home is considered 20%. Some people have come to believe that this 20% is a mandatory requirement to be accepted for a mortgage loan and be able to purchase a home. And some people have come to believe that if they try to make a lesser down payment it will hurt them in the long run. The truth is a Plano home buyer can purchase a home with a lower down payment and in some scenarios it is a better financial move.
The 20% down payment is being used less and less often by homebuyers across the country. The average home purchase down payment for first-time buyers in America is currently a 5% down payment. This is information shared through the National Association of Realtors snapshot of real estate trends. The NAR attributes this new average to an increase in the cost of purchasing a home currently. The average second-time homebuyer even with the help of equity from a previous home sale is only putting down 14% on their next home.
Here are three financially-savvy reasons to purchase a home in Plano without the 20%
You are renting
If you are currently renting a home and are saving up for a down payment to purchase your first home you might be trying for 20% to help you avoid private mortgage insurance. Most often mortgage insurance costs between 0.3% and 1.2% of the total amount of your loan. While you are saving up for this down payment to avoid that extra fee you are missing out on the benefits of home ownership.
When you pay rent you are paying into your landlord's benefits of homeownership. Private mortgage insurance is a small extra price to pay as compared to what you are missing out on from benefiting from making payments on a home you own.
Missing out on a home you love
If you see a home for sale that you love and believe it is within an affordable price range for you then you may miss out on the chance to purchase the home as you are saving to make a larger down payment. You might feel that your affordable budget to purchase a home would be drastically lowered and you won't find a home you like. But you may be surprised at what you really can afford when you go over your finances and get preapproval for a mortgage.
While you want to make sure you are not spending over 30% of your income on your home it is a good idea to look into just how much mortgage you would be approved for that would fit within that affordable range. It is always a good idea to talk with a few mortgage lenders to see what mortgage process would be available to you. And it is always worth talking to at least three lenders to help discover the optimal mortgage loan available to you. Research has found that homebuyers who shop for more than one mortgage can save thousands of dollars on a home purchase with each mortgage product they look at. A mortgage broker can help you shop for loans and do most of the shopping for you.
It could make more sense to retain some of that cash
If making a 20% down payment would almost drain your savings it would be a better financial strategy to retain some of that money for your savings. You may need this money for other emergency issues that can arise. There's anything the pandemic taught us is that we should have a good amount in our savings. You could also benefit from high-interest savings accounts instead of putting the entire amount down on the purchase of a home.
It is in your best interest to talk with a financial advisor about your personal finances to help you determine if taking out a loan with a lesser down payment is a better option for you to help you purchase a Plano home.
If you are currently looking for a home in Plano I can help. Contact me anytime with your Plano real estate needs. I am highly experienced in Plano real estate and I am ready to help you find a home in one of the beautiful Plano neighborhoods that you will love.