Buy Now or Save More Money?

Emily Terpak January 9, 2024

There is a saying that goes ‘The best time to plant a tree was 20 years ago. The second best time is now.’ Since houses *usually* appreciate over time, the sooner you buy real estate, the better. 


You also might be happy to know that you don’t need to put 20% down to purchase a home. In fact, most first time home buyers put 3-5% down. This makes buying a home much more attainable. But if you’ve heard that 20% down is a must or you’ve thought about continuing to rent until you reach that point, keep reading!


The advantage of putting 20% down is that you do not need to pay PMI (private mortgage insurance) every month. PMI is a monthly charge that is added to your mortgage payment which you will eventually stop paying once you reach 20% equity in your property (conventional loan only. PMI will remain forever with an FHA loan).  


The cost of PMI depends on your credit score and loan amount. The higher your credit score and lower the loan amount, the less your PMI payment will be. To give you an idea of numbers, I’ll give you an example from my home purchase. I purchased a $390k home and put 5% down. With my loan amount around $370k, my PMI is about $100/mo ($1200/yr). If I wanted to avoid PMI altogether, I would have had to put another 15% down, almost $60,000! 


Now we’ll look at the math and timeline of what it would cost for me to save an extra $60,000. Let’s assume that I would need to rent for another two and a half years at $1,700/mo in order to save $60,000. Over the course of those two and a half years, I would have spent $51,000 on rent. Meanwhile, had I just put 5% down, I could have enjoyed living in my house two and a half years earlier, start paying my mortgage off sooner, and my house could have appreciated during that time. Therefore, $100/mo for PMI didn’t seem all that bad once I started looking at the numbers/time.


Another great calculation to look at is for every $10,000 you add or subtract from your downpayment, you will increase or save $50/mo. For instance, let’s say you are putting $20,000 down on a $400,000 house and your mortgage is $2100/mo. And you’re thinking of renting for a year in order to save another $10,000 and put $30,000 down. By putting another $10,000 down, your mortgage would reduce from $2100/mo to approx. $2050/mo. And if you are renting an apartment at $1700/mo, that is $20,400/year. Crazy, right?

Already have 20% saved? Great, you can put that towards your house! But if you don't have 20% to put down, you might still want to consider buying now and not waiting until you do. 


Reach out to learn more about the financial side of buying and for a great lender contact to get you started!

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