Do Low Down Payments Make Mortgages More or Less Affordable

Do Low Down Payments Make Mortgages More or Less Affordable

File this question under β€œit depends.”

It’s true that loans with down payments of 20 percent or more cost borrowers less over time than low down payment loans. Low down payments leave larger principals to pay off, and those principals create more interest over time. Low down payment loans also require mortgage insurance.

However, a low down payment itself can actually boost affordability by getting you off the sidelines and into a home of your own sooner.

Let’s look at the numbers.

 

At current interest rates and based a median family income, you’d need about 22 percent of your income for monthly payment with a 20-percent-down mortgage and about 24 percent with a 3.5 percent down payment. And, should rates rise to 4.75 percent by the end of this year, a buyer putting 20 percent down would pay about 25 percent of his monthly income and a buyer using a low-down payment loan at 3.5 percent down payment would pay about 28 percent of the buyer’s monthly income.

While 20 percent isn’t necessary and isn’t even the average (7.6 percent), it will help reduce the monthly payment simply because your total mortgage loan is less than with a lower down payment. But, it’s important to evaluate the cost-benefit of a lower down payment.

Why low down payments help

Forgoing a low down payment today to save for a 20 percent down payment in the future changes the equation for first-time buyers. With home prices and rates on the rise in 2018, Β affordability will likely worsen in the months ahead.

In fact, a recent survey by Apartment List found that it takes many millennials a decade or more to save enough to make a 20 percent down payment. By that time, the costs of waiting so long will outweigh the advantages of a larger down payment.

Since 2012, it has been cheaper to buy than rent in most markets and rents today are consuming an even larger share of monthly disposable income. By the end of this year, rates could rise as high as 4.75 percent, and prices are forecasted to continue to rise in 2018. Rising rates and prices will increase the cost of a 20 percent down payment for those who delay.

In the Barriers to Accessing Homeownership study released in November, analysts at the Urban Institute’s Housing Finance Policy Center concluded that β€œwith rising home prices and interest rates, access to sustainable mortgage credit is often only possible with low–down payment loans.”

Evaluate your options

Don’t aim for a 20 percent down at all costs. Yes, it can help drive down your monthly payment, but you also want to ensure you have a strong financial cushion when you become a homeowner. And, if you wait too long, you may end up paying more with a higher interest rate and home prices.

Search for homebuyer programs available in your market and for your personal situation. You may find a program that can help with the down payment and/or closing costs.

Find a knowledgeable agent or lender who is eager to teach β€” you want someone who can help you evaluate all your options.

For more data and information on down payment trends from a variety of sources, subscribe to our monthly Down Payment Report.

I read this article at: https://downpaymentresource.com/low-payments-make-mortgages-less-affordable/

Remember to follow our BlogΒ for the local real estate beat, a pulse on the San Francisco Peninsula at: https://therealestatebeat.wordpress.com

Got Questions? – The Caton Team is here to help. Β 

Email Sabrina & Susan at:Β  Info@TheCatonTeam.com

Call us at: 650-568-5522Β  Office: 650-365-9200

Want Real Estate Info on the Go?Β  Download our FREE Real Estate App:Β Β http://thecatonteam.com/mobileapp

HomeSnap:Β http://www.homesnap.com/Sabrina-Caton

Visit our Website at:Β Β  http://thecatonteam.com/

Visit our INSTAGRAM page:Β  http://instagram.com/thecatonteam

PINTREST: https://www.pinterest.com/thecatonteam/

Visit us on FACEBOOK: Β Β http://www.facebook.com/pages/Sabrina-Susan-The-Caton-Team-Realtors/294970377834

YELP us at: http://www.yelp.com/biz/the-caton-team-realtors-sabrina-caton-and-susan-caton-redwood-city

Or YELP me:Β  http://www.yelp.com/user_details_thanx?userid=gpbsls-_RLpPiE9bv3Zygw

Twitter:Β https://twitter.com/TheCatonTeam

Connect with us professionally at LinkedIn:Β  https://www.linkedin.com/in/sabrinawendtcaton

https://www.linkedin.com/in/susancatonrealtor

Please enjoy my personal journey through homeownership at:

http://ajourneythroughhomeownership.wordpress.com

Thanks for reading – Sabrina

The Caton Team – Susan & Sabrina – A Family of Realtors

Effective. Efficient.Β Responsive.Β  What Can The Caton TeamΒ Do ForΒ You?

Berkshire Hathaway HomeServices – Drysdale Properties

Sabrina BRE# 01413526 / Susan BRE #01238225 / Team BRE# 70000218/ Office BRE #01499008

Click Here for Help with Down Payment Assistance Programs in California

Hello Fellow Californians!

I personally understand that struggle of coming up with the down payment to buy a home. Β 20% in any price range can be a daunting figure to save up for. Β And if you’re buying in an appreciating market, for instance, the Silicon Valley – then sometimes you can’t save fast enough!

Thankfully the California Association of Realtors created a website where you can search for downpayment assistance programs statewide. Β We added it to our website – please check out the link below…

http://thecatonteam.com/downpaymenthelp

We know you’ll have questions – so please feel free to contact us any time.

Call our desk at 650-568-5522 – you can also leave a message or email us at Info@TheCatonTeam.com

Prefer to send a text – happy to share my private cell!

 

The Caton Team Realtors is here to guide the way. Β What can we do for you?

Β 

Remember to follow our BlogΒ for the local real estate beat, a pulse on the San Francisco Peninsula at: https://therealestatebeat.wordpress.com

Got Questions? – The Caton Team is here to help. Β 

Email Sabrina & Susan at:Β  Info@TheCatonTeam.com

Call us at: 650-568-5522

Want Real Estate Info on the Go?Β  Download our FREE Real Estate App:Β Β http://thecatonteam.com/mobileapp

HomeSnap:Β http://www.homesnap.com/Sabrina-Caton

Visit our Website at:Β Β  http://thecatonteam.com/

Visit our INSTAGRAM page:Β  http://instagram.com/thecatonteam

PINTREST: https://www.pinterest.com/thecatonteam/

Visit us on FACEBOOK: Β Β http://www.facebook.com/pages/Sabrina-Susan-The-Caton-Team-Realtors/294970377834

YELP us at: http://www.yelp.com/biz/the-caton-team-realtors-sabrina-caton-and-susan-caton-redwood-city

Or YELP me:Β  http://www.yelp.com/user_details_thanx?userid=gpbsls-_RLpPiE9bv3Zygw

Twitter:Β https://twitter.com/TheCatonTeam

Connect with us professionally at LinkedIn:Β  https://www.linkedin.com/in/sabrinawendtcaton

https://www.linkedin.com/in/susancatonrealtor

 

Please enjoy my personal journey through homeownership at:

http://ajourneythroughhomeownership.wordpress.com

Thanks for reading – Sabrina

The Caton Team – Susan & Sabrina – A Family of Realtors

Effective. Efficient.Β Responsive.Β  What Can The Caton TeamΒ Do ForΒ You?

Berkshire Hathaway HomeServices – Drysdale Properties

Sabrina BRE# 01413526 / Susan BRE #01238225 / Team BRE# 70000218/ Office BRE #01499008