Down Payments, Renovations, and PMI

For first time home buyers, the challenge of coming up with a down payment is often difficult enough to keep them out of the market- but even though it’s an oft-quoted benchmark, most people don’t put 20% down on a home.

Why put less than 20% down? 

You don’t have enough money for a 20% down payment
Just so you know: you’re not alone. For first-time home buyers who financed the purchase, the median down payment was 7%, according to a 2018 survey by the National Association of Realtors. The median down payment for repeat buyers who financed was 16%- likely because they were able to gain equity in their first home.

You’d like to buy in at today’s prices and low mortgage rates and begin to build equity in your home.
Are home prices increasing year over year in your area? Consider this: mortgage insurance lets you buy in to homeownership at today’s prices and low mortgage rates. A loan with PMI allows buyers to own a home much sooner and benefit from home appreciation. Not to mention, in many parts of the country, and particularly in West Michigan, a mortgage often costs less than rent for a comparable property. Buying a home can help you to avoid rising rents. Homeownership means more financial responsibility and maintenance costs, but it also offers stability, continuity, and the opportunity to improve your home. There are also tax advantages to owning a home, including the mortgage interest tax deduction. 

You are looking for a Fixer Upper!
Hey HGTV fans- if you plan on remodeling or significantly improving your home, you may want to keep more cash available to pay for these improvements. Maybe you found a house with the perfect layout and location- but with a very dated interior. You may want to put less money down and save your remaining available cash to put toward remodeling.

You want to have more cash on hand for emergencies. Unlike cash, home equity is an “illiquid asset”, which means that it can’t be readily accessed or spent.