Are you thinking about buying a house in the next year or two? Most Americans still believe that buying a home is a good financial investment, according to the 2017 National Housing Pulse Survey, conducted by the National Association of Realtors. Eight out of ten respondents feel that paying off a mortgage and owning a home by the time you retire was a primary motivation for buying a home, and they consider it a good way to build wealth and increase net worth.
Before 2008, many lenders offered zero-down-payment on mortgages to prospective homeowners. Then came the housing market crash and the Great Recession. As a result, lending guidelines became stricter. You still may find some zero-down-payment mortgages available from quality lenders. Just expect to pay a premium in the form of a higher rate on the loan and/or higher fees, says Tracy Ashfield, President of Ashfield & Associates, Madison, Wis., a mortgage consulting firm that assists credit unions.
“That’s why we stress so much to folks that it’s important to accumulate some down payment,” she says. “You’ll get a more competitive mortgage product that will help you keep your monthly payments down.” That will save you a lot of money in interest over the life of your loan. “Sit down with your lender as soon as you can,” Ashfield advises, “even if you’re a year or 18 months away from buying.” With your lender, you can go over your income, savings, other assets, and credit score. From there, you can figure out a reasonable down-payment goal. “Maybe you’ve accumulated a 5% down payment,” Ashfield notes. “Or maybe it makes more sense to pay 3% down and use some of your money to pay discount points to buy down your rate a little bit.” (Discount points are fees you pay a lender at closing to reduce your interest rate. A point is 1% of the amount borrowed.)
Your best strategy depends on your complete financial picture. Your lender can help you select a down payment and other mortgage features that best fit your financial situation. (Note: If your down payment is less than 20%, you’ll generally pay for private mortgage insurance, which protects the lender against losses. That adds to your monthly mortgage payment.)
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