Just for fun I decided to run an experiment. Parameters:
Home price: $175,000
Mortgage payment: $980/month (my budget allows up to $1k/month to go towards a home, realistically)
When interests rates were at 3%, that would mean my down-payment would need to be $35,000 (20%) to achieve that monthly payment amount
With today’s interest rate of ~5%, to achieve the exact same payment for the exact same house and purchase price, I would need to pay $63,000 (36%) as a down-payment.
Guess who still doesn’t have a house despite finally having $35,000 ready to throw down 🙂
You are correct.
The solution was that most people weren’t putting down 20%. That idea made sense when rates were high (double digits) to avoid PMI and get a good rate but purchase prices were low then so it was easy to save 20%.
For the last decade, the average down payment was 7%. It would have been better to get in at the low rate and probable lower price. But hindsight is always 20/20 and life isn’t always straight forward
Do you have outstanding debt? Eliminating debt will allow you to obtain a favorable mortgage rate from your lender in the future and frees up more cash for your monthly budget.
Just keep an eye out in your local market. Houses go on sale all the time for weird reasons and the prices can be below market, but I’m a believer that generally there is an ass for every seat. Of course there are exceptions, but think they are temporary.
Things like nasty divorces, deaths, having kids, kids moving it, out of town job offers, financial trouble, etc… They all happen on their own schedule, the just have to be there ready when they do.
I jokingly told my buddy a couple years ago that I wanted to save up $100K for a down payment so that I’d have a relatively nonexistent mortgage payment. Well, here we are, and I guess I really do be needing that $100K down payment due to the very reason you mentioned :/
So, you buy a small house or in a different neighborhood or put less down.
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