Buying A Home
CowgirlK39
member
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Our tech team has launched updates to The Nest today. As a result of these updates, members of the Nest Community will need to change their password in order to continue participating in the community. In addition, The Nest community member's avatars will be replaced with generic default avatars. If you wish to revert to your original avatar, you will need to re-upload it via The Nest.
If you have questions about this, please email help@theknot.com.
Thank you.
Note: This only affects The Nest's community members and will not affect members on The Bump or The Knot.
DP question
My DH cannot fathom the idea of a 20% down payment on a home. He says it would take half a lifetime to save that much but I told him that's how it is. He told me some time ago that he has heard of planed that require no DP, which is the only thing holding us up from buying a home. Is there such a thing as not having to pay a down payment? What is the catch?
Re: DP question
Your interest rate may be higher, which will cost you more money in the long run. Having a higher rate can cost multiple tens of thousands of dollars over the life of a mortgage loan (typically 20-30 years).
No or little DP means that your loan will be riskier for lenders to take on (if they do it at all) and so they will probably be stricter in other areas like in evaluating your loan application (credit, work history, payment history, etc.).
You open yourself up to more risk financially with little or no DP.
For example, let's say you buy a $100k home and you finance 100%, so $0 DP.
Then the market tanks, and you need to sell your home, but you cannot because your home's value is less than what you owe on it. This is called being upside down on a mortgage and it is a very real problem for many home owners, many (not all) of whom did no or little DPs).
People always think "this will be my forever home," but really life changes so quickly none of us ever really know. You should always buy a home with resale and needing to move, in mind. You cannot sell a home that is worth less than the mortgage.
Having a DP and a good one, means you limit your exposure to becoming upside down.
Also, there are the costs of PMI. Typically, you do have to pay this monthly if you put less than 20% down on a conventional. But this guideline also changes in June for FHA loans (you've probably read about that here too).
I'm not sure 0 DP plans even exist anymore. But I agree with pp. You really should consider at least 3.5% but the more you can put down the better. In addition you need to have money saved for closing costs, moving expenses, decorating, yard equipment, etc. It adds up fast. You will need to have a healthy e-fund because things will break.
If you haven't done so already start tracking all your expenses and cut back where you can. I worked a 2nd job for a long time to be able to buy my first place and it was completely worth it. You absolutely can do it if you put your mind to it.
USDA loans can be 0 down payment (for purchasing in a qualified rural area) and there are local programs that encourage home ownership in questionable parts of towns and cities that also offer 0 down loans.
That said, if you cannot save for a down payment, you have no business buying a home. If you don't have the means (or maybe its a self-discipline issue) to save extra money, you will not be able to afford to replace the roof, fix the leaky pipe and associated water damage, buy the lawn equipment, etc. that all comes with being a home owner. It is better to rent and be able to sleep easy at night than to own and be constantly financially strapped.
There are also FHA loans. It would be in your best interest to talk to a mortgage lender or Realtor to discuss all of your options. We didn't know all of our options until we started talking to a lender. But, it is best to put something down.
Depending on where you live, saving up 20% can cost you in the long run. Where I live, it's pretty much impossible to save fast enough. We pay 1500/m in rent. That equates to a $300k mortgage. House prices increase 7%/yr right now. That means we are losing out 39k a year (18k to rent instead of mortgage.. 21k from appreciation value).. For us to put 20% down we would need $60k down..then an extra $6k+ per year we were trying to save.. Within 2-3 years we would be losing money by waiting.
If you live in a hot market, it makes sense not to wait. If house prices are fairly inexpensive in your area and it's only going to take 2yrs or so to get the 20%.. It would be worth it to wait until you have that big down payment.