Myths about Down Payments

Financing

Myths to Stop Believing about Down Payments 

When you’re getting ready to purchase a home, whether it’ll be an investment property, summer getaway or the place where you lay your head every night, you have to have a down payment ready to go. With information flying around from all kinds of sources saying how much you should or shouldn’t have for a down payment for a home, you might be wondering what to believe. Here are some common misconceptions when it comes to putting a down payment on a home.

3 Myths to Stop Believing Before you Buy

Myth #1: You shouldn’t put more than 20% down

For buyers these days, having 20% saved for a down payment on a home is one of the biggest challenges they face when purchasing. But if you’re one of those investors or home owners that can out more than 20% down on a home from the start, should you actually put more than 20% down if you’re able? You’ve most likely heard that you shouldn’t put more than what you need to put down, but if you do, there are some great benefits that can come with it.

First off, you avoid the mortgage insurance. But more than that, it’s signaling to the borrower that you’re a trustworthy buyer. If you’ve purchased homes before, you have a track record for the lender to look at. But if this is one of your first home purchases, putting down more than 20% could get you lower interest rates, which could save you tens of thousands of dollars over the life of your home loan.

You also have to consider what’s best for you, though. If you put 25% down, you might see a reduction in your interest rates. But with 35% down, you will definitely start to see more of an impact. However, if you have other investments that could benefit from an influx of cash, you may want to consider using that extra money elsewhere. At the end of the day, putting more than 20% down will only benefit you, so don’t be nervous to do so.

Myth #2: Cash always wins

In a competitive market like Orange County, you’ve probably heard stories about cash buyers coming in and swooping up homes from buyers who don’t have an all cash offer. If you’re working with a loan and a small amount down, you might be right. A cash offer gives the seller the ultimate ease and peace of mind because there usually aren’t any last minute hiccups at the finish line. But sometimes, a cash offer isn’t necessarily the most important thing to a seller.

If you’re willing to put in an offer that is higher than the asking price, you can still come out on top. You can also write a stellar personal letter that appeals to the seller. For instance if you have a young family and you’re moving from your ocean view condo to a more suitable space for children, you could appeal to the sellers sense of compassion. While cash is a tough thing to beat, it isn’t impossible. Don’t be discouraged when you’re going up against a cash offer, think outside the box and see if you can come up with another way to appeal to the seller.

Myth #3: Paying mortgage insurance is smarter than paying a bigger down payment

Mortgage insurance may seem like a small price to pay in order to be able to have some money for other investments when you’re purchasing a home, but you need to calculate what it will cost you. If you are working with a conventional loan, you’ll have to pay the mortgage insurance until the principal balance reaches 78% or less. If you’re working with an FHA loan, then you will have to pay the mortgage insurance for as long as you live in the home, or pay off the mortgage. Before you decide how much you should put down, weigh out your options and know that saving a little money now could cost you more in the long term. It’s never a bad idea to put down more than necessary to avoid worrying about mortgage insurance.

Purchasing a Home in Orange County

When you have your down payment ready to go and you’re ready to start finding your next home or property, you are going to want to work with someone who is going to be able to represent you in the competitive market. Not only that, you want someone who understands what you are able to bring to the table financially, and find a home that fits your parameters. I have lived in OC for many years and had the pleasure of helping all sorts of different buyers find the perfect homes for them. I can help you too. Call me today at 949-500-9714 to get started with the home buying process.