RENTING, BUYING, DOWN PAYMENTS
We are often asked how much down payment should we have? The answer is: whatever you have now you should try and work with. Here's why:
The price of homes is going up at a rate that is unlikely to be countered by an aggressive savings plan. If homes are going up by $50,000 per year, and you can save about $25,000 per year towards your down payment you are losing ground. In that scenario, the additional $25,000 would lower your monthly payment by about $250. The additional $50,000 on the price tag will increase your payment by about $250. And in any event, who wants to add $50,000 to the price of anything they are buying?
But I don't want to pay for Private Mortgage Insurance! Not to worry - there are plenty of ways around paying PMI. We just need to find the one that works for you.
And if you're renting - you are REALLY losing ground. Below is what my nephew calls the "Spreadsheet of Searing Pain." So shocking are the numbers on it for renters, that he named it such and we've been using the name ever since. My nephew (who is now in real estate himself), was renting and really had no idea how much ground he was losing. I prepared the sheet with his data and it is shown below. Needless to say, my nephew now owns a home.
Seriously, if you are renting and are just daunted by the prospect of owning: STOP IT.
Writing a mortgage payment check is exactly like writing a check for rent except you are getting a tax break, you are building equity by paying down the loan, and you are building equity by appreciation of the home. Remember that promise you had about putting away money every month into savings and you often won't/can't do it? Owning a home is like a forced savings account. You'll be gaining savings every single month.
Click on the image below to pull up a PDF of a scenario that contrasts the over half million dollar difference between buying a $1.5m home with 5% down and staying in a $5,000/month rental.
One way, you have a net worth increase of $237,854. The other way you simply lose $300,000 in rent.
The difference between a positive $237,854 and a negative $300,000 is $537,854.
Over. A. Half. Million. Dollars. Let that sink in for a bit, then talk to us. We'll get you started.