Homebuyers who use conforming loans insured by FHA can pay as little as five percent down to borrow up to $417,000. But to qualify, you need excellent credit, including revolving debt contained within eight to 10 percent of your gross income, verifiable income such as pay stubs from an employer, and you must be willing to pay mortgage insurance premiums to cover the lender’s additional risk.
To get a loan that can be sold to Fannie Mae or Freddie Mac, lenders have recently required as much as 20 percent down, as well as credit scores as high as 750.
But lenders are easing up, and allowing buyers to qualify for loans with as little as 10 percent down. This lets home buyers to get into the housing market without having to wait years to collect the requisite 20 percent down.
So should you buy now or save for a bigger down-payment?
The answer depends on your tolerance for risk.
The advantages to putting 20 percent down are many. You’re likely to get a lower interest rate because you’re borrowing less money. Your monthly payments will be lower, allowing you to weather the changes life may throw at you more comfortably.
When you put less money down, you pay private mortgage insurance, making your monthly payments higher for at least five years.
And if you need to sell your home sooner than you may have planned, you may not have the equity you need to sell without bringing your own cash to the closing table.
On the other hand, putting less down enables you to do get into a home now, as opposed to waiting. While your monthly payment will be higher, you can do other things with your cash – pay off other debt, furnish your home, invest in securities, or save it.
One factor that may help you decide what to do is how home values are doing in your area.
According to Zillow’s most recent survey of over 100 economists, home prices will end six percent higher in 2013 than in 2012.
The most pessimistic projection is that home prices will rise 16.8 percent from current levels by 2018. The most optimistic experts forecast that prices will rise 40.1 percent in the next five years.
If you have any questions, please get in touch with me; I’m always happy to speak with you.