|Photo Credit AlexanderStein Pixaby|
Today, I’m going to give you a case study to help you decide whether or not you should wait and save a full 20% for a down payment before purchasing your next house.
Let’s start with the numbers.
$329,000 home with four bedrooms and 3 bathrooms, 2,000 square feet. (Average home in Utah county right now at the market’s average price.)
To get a 20% down payment, you’d have to save $66,000. How would you do that? Well, maybe you’d save your tax return. The average tax return in Utah is $2,681- at that rate, you’d have to wait 24 years! But let’s say you just want to save it the old fashioned way. If you saved about $1,000 a month for 5 years, you’d have your down payment, which seems feasible.
Now- let’s use that same 5 years and go back in time. Let’s say that you decided to buy a home 5 years ago without 20% down. 5 years ago, that $329,000 home would have cost $231,000. You’d have gotten a mortgage at 4.2% (the average then) and your monthly payments would be $1,270. Fast forward five years, and your home is now worth $329,000 and you have $98,000 in equity in your house, to say nothing of what you would have paid towards your mortgage during that time that would have given you even more equity.
Going back to the first scenario- you’ve finally saved $66,000 and get a loan for $263,000 (our $329,000 average home, less your down payment) at 3.8% interest (current going rates). Your mortgage is $1,367. You had more money down and a lower interest rate, but the price of the home went up so much that you’re actually paying more each month and have less equity than if you had bought the house five years ago without a down payment.
Most people live in a home for 5-7 years before moving. If you decided to buy instead of save, you could have lived in the home for those five years and then sold it, using the equity you had built up for a down payment on your next house!
Any questions? Wondering if it’s the right time to buy? Message me!