Thinking about buying your first home this spring? Excellent! You're already making the right move by educating yourself by reading this handy blog. Keep in mind that every
Down Payment Drama Myths And Advice
Twenty percent. That’s the magic number for a house down payment, or at least according to popular wisdom. Earlier in the 20th century, that might have been both true and achievable. But now, with student debt creeping up and housing prices following suit, coming up with a 20% down payment can seem unattainable for many people!
Thankfully, home ownership is easier than you might think, and the 20% myth isn’t always true. While it is never bad to have a larger down payment, the road to your dream home can be navigated with research and patience.
Why the 20% Myth?
Typically, a 20% down payment is required to avoid private mortgage insurance (PMI.) PMI is an additional cost on top of your mortgage payment, basically to help secure your loan in case you default. Makes sense, right?
However, once you’ve paid around 20% of the cost of the home, PMI can usually be cancelled. So while the price can scare off first time buyers, proper budgeting and planning can make it a temporary hurdle.
Grants and Alternative Loans
Many localities offer grants for first-time homebuyers, typically focused on reducing down payment costs. For instance, Chicago has a grant that pays for 7% of the down payment to families making under $133,000. Other cities roll the down payment into a lower-interest loan, including Raleigh. If you’re more of the country-living type, the USDA also offers zero down payment mortgages.
Veterans also get access to down payment assistance through the VA. These come with the additional benefit of not requiring PMI!
Do note that many of these loans have special conditions. For instance, the North Carolina Home Advantage Mortgage requires you repay the down payment assistance if you leave the house in less than 15 years.
Saving and Budgeting
As stated above, it’s rarely bad to have a larger down payment, and it pays to save. If you don’t currently have savings in your monthly budget, now is the time to factor them in. Tools like You Need a Budget can analyze your current spending and help you figure out where to cut back.
It’s also smart to open a new savings account just for your down payment. Keeping the money separate from your emergency fund or checking account reduces the temptation to dip into it!
If you’re looking for a new home in the North Carolina Triangle, Domicile Realty can help! We know our state’s mortgage options and housing market like few others. Contact us today and let’s find your dream home!
A native of New Jersey, Kristine attended Rowan University with a major in Early Childhood Education. After teaching kindergarten for one year, she discovered her passion for real estate and subsequen....