Saving for a home

If you’re saving for a home while prices are rising, why not let the market help you instead? 

Minneapolis, MN: It’s great to save up for a large down payment of 20% or more. Yet that goal isn’t needed, and may be impossible for many people, especially first time home buyers. According to a recent survey, the average down payment was just 7%. Plus when home prices are on the rise, saving quickly enough to keep pace can be extremely difficult.

Why not let the market build equity for you instead? Owning a home in an appreciating market can build equity must faster than most people could ever save. For example, a $200,000 home that appreciates by 6% gains $1,000 per month in equity. Could you save $1,000 a month towards a down payment? So putting a small down payment, or even using down payment assistance to get into a home today is just smart.

What are the benefits of buying now? 

Getting ahead of rising prices and changing rates. Interest rates today are hovering slightly above all time lows. Who knows what rates will be in the future. Purchasing with a small down payment often means you’re required to purchase mortgage insurance (MI or PMI for Private MI). Your total monthly payment will be higher; however, the cost of mortgage insurance today can be a lot less expensive than buying a more expensive home at a potentially higher rate tomorrow, and for most people, it can be a tax write off.

Diverting rent payments to equity. If you’re currently renting, chances are good your monthly expense is already similar to a payment to own. When you consider that part of your payment is a reduction of principal balance, the real net cost can be far less. 

Using appreciation to your advantage. While you’re saving to buy, appreciation (or rising home value) works against you. After you’ve purchased your home, rising value works with you to build equity and may even mean you can eliminate the cost of mortgage insurance more quickly. 

Earning tax advantages. Many homeowners enjoy income tax savings based on the mortgage interest and real estate taxes they pay each year. Talk to your tax professional to see if tax advantages may reduce the actual cost of owning for you, too. 

It pays to view MI as a means to an end. In all likelihood, it will be a temporary cost, which may pay for itself over and over again. 

If you have questions about MI, appreciation and interest rates, reach out to the Joe Metzler Team at Cambria Mortgage at (651) 552-3681. We’ll be happy to share our experience with you today. For quicker service, just complete the online loan application.