An even bigger mortgage mistake is waiting until you have enough money for a 20% down payment.
It’s true that when your down payment is less than 20%, your mortgage will cost you more, but if you wait, the financial benefits you realize by owning rather than renting will be overshadowed. Here’s what I mean.
You can have a down payment for as little as 3% but for the purpose of this example, we’ll use 10%.
Let’s say you buy today at a price of $700,000 with a down payment of 10%. Your mortgage will be $630,000. You will pay an additional $240 for mortgage insurance and about $131 for our payment. Rough numbers, but close.
One year later, your new home has increased in value by 5% or roughly $36,000. Compare that to the $4,450 extra you’ve spent in mortgage insurance and additional interest. And this doesn’t take into consideration the tax benefits of owning.
Take the same purchase price with a down payment of only 5%. Your interest rate will be the same as for the example above, but your mortgage insurance will be able $100 more each month, $1,200 a year. Not much difference, right?
These are just examples to show you that, if lack of down payment is your issue, waiting doesn’t make sense. Different loan amounts and down payments will change the numbers, but the above examples give you an idea of the cost of waiting.
Don’t wait 🙂