Secret 2: Make Larger Down Payment

In this situation you have the funds for a large down payment but ask yourself if it is wise to give all your life savings. Well let us see:

If you do, this solution is worth trying. The problem is, not every bank does these kind of deals. Secondly, today's market situation has forced banks and credit unions to pull back from lending business. Banks are nervous and still may very well decline your application. Be prepared to prove your consistent verifiable Income to bank. They want to know how you will pay for your monthly installment.

Connect with us to find out how to position your-self best when presenting mortgage application and which lenders to align with.

There are some great advantages along with precautions to consider if you can accommodate a larger down-payment. It would definitely offer you a better interest rate reducing the amount you would have to borrow; in effect you will pay less interest over the total life of your mortgage loan. But you must not forget, there are other expenses like insurance, taxes, property transfer fee, and closing cost that must take into account. Further more, anything can happen that can make it difficult to meet your financial obligation. It is very important in this respect to realize if you give all your life savings, you will also sacrifice your emergency funds should something go wrong like a job loss. Are you confused about 5%, 20% or even higher down payment like many others? Read more....

What is the best down payment strategy? 5% or 20%

Look at it like this, the longer you wait the higher the purchase value of the house becomes. It is better not to wait until you have 20% down payment for your house. You save more buying your house as soon as you can. The price of properties keeps going up and up...If you secure it now you lock the property value at the price you first purchased it. The accumulated 20% would be a loss if you held back in the beginning because once you put it down on the house the value of it has already gone up thousands. For example:

Option A

Lets say Mark, a potential homeowner has found a house for $250 000. But Mark believes it is a better strategy to save up for the 20% down payment. So he continues to rent at $1400 per month, he would wind up paying $93 000 over a 5-year period, even worse is that after forking over $93,000 he still has nothing to show for it

Assuming that the $250 000 property value of the house increases 5% per year over 5 years. The house would now be worth $319,700

1st year: $262,500
2nd year: $275,625
3rd year: $289,406
4th year: $303,876
5th year: $319,070

During this period, Mark choose to rent and is saving $600/month until he can afford the 20% down payment which is $50 000. At this rate it will take him approximately 7 years to save this money. Renting for 7 years at a rate of $1400/month he has paid out and lost over $93 000 to the landlord. Now the house he expected to purchase for $250 000k is now worth $319 000K.

What if he choose the other option?

Option B

What if he took advantage of the 5% down payment strategy and purchased the $250 000 house paying approximately $1900/month including all home expenses. In 7 years by making regular payments on time, he would have built $110 000 worth of equity in there home.

In conclusion, it is clear that it is a better strategy to purchase a home with 5% down payment then to wait until you have 20% down payment. If you are paying rent, you are losing money in the long term, capital that could have been invested on your home.

Contact us to find out how to position yourself best when presenting mortgage application and which lenders to align with.