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Author: Seth Pfaehler

The Perks of Putting 20% Down on a Home

If you’re thinking of buying a home, you’re probably wondering what you need to save for your down payment. Is it 20% of the purchase price, or could you put down less? While there are lower down payment programs available that allow qualified buyers to put down as little as 3.5%, it’s important to understand the many perks that come with a 20% down payment.

Here are four reasons why putting 20% down may be a great option if it works within your budget.

1. Your Interest Rate May Be Lower

A 20% down payment vs. a 3-5% down payment shows your lender you’re more financially stable and not a large credit risk. The more confident your lender is in your credit score and your ability to pay your loan, the lower the mortgage interest rate they’ll likely be willing to give you.

2. You’ll End Up Paying Less for Your Home

The larger your down payment, the smaller your loan amount will be for your mortgage. If you’re able to pay 20% of the cost of your new home at the start of the transaction, you’ll only pay interest on the remaining 80%. If you put down 5%, the additional 15% will be added to your loan and will accrue interest over time. This will end up costing you more over the lifetime of your home loan.

3. Your Offer Will Stand Out in a Competitive Market

In a market where many buyers are competing for the same home, sellers often like to see offers come in with 20% or larger down payments. The seller gains the same confidence as the lender in this scenario. You are seen as a stronger buyer with financing that’s more likely to be approved. Therefore, the deal will be more likely to go through.

4. You Won’t Have To Pay Private Mortgage Insurance (PMI)

What is PMI? According to Freddie Mac:

“For homeowners who put less than 20% down, Private Mortgage Insurance or PMI is an added insurance policy for homeowners that protects the lender if you are unable to pay your mortgage.

It is not the same thing as homeowner’s insurance. It’s a monthly fee, rolled into your mortgage payment, that’s required if you make a down payment less than 20%. . . . Once you’ve built equity of 20% in your home, you can cancel your PMI and remove that expense from your monthly payment.”

As mentioned earlier, if you put down less than 20% when buying a home, your lender will see your loan as having more risk. PMI helps them recover their investment in you if you’re unable to pay your loan. This insurance isn’t required if you’re able to put down 20% or more.

Many times, home sellers looking to move up to a larger or more expensive home are able to take the equity they earn from the sale of their house to put 20% down on their next home. With the equity homeowners have today, it creates a great opportunity to put those savings toward a larger down payment on a new home.

Bottom Line

If you’re looking to buy a home, consider the benefits of 20% down versus a smaller down payment option. Let’s connect so you have expert advice to help make your homeownership goals a reality.

The Average Homeowner Gained $56,700 in Equity over the Past Year

When you think of homeownership, what’s the first thing that comes to mind? Chances are you might focus on the non-financial benefits, like the security or stability a home provides. But what about equity? While it can be overlooked, a homeowner’s equity helps build long-term wealth over time. Here’s a look at what equity is and why it matters.

For a homeowner, your equity is the current value of your home minus what you owe on the loan. So, as home values climb, your equity does too. That’s exactly what’s happening today. There aren’t enough homes on the market to meet buyer demand, so bidding wars and multiple offers are driving prices up. That’s because people are willing to pay more to buy a home. Right now, this low supply and high demand are giving current homeowners a significant equity boost.

Dr. Frank Nothaft, Chief Economist at CoreLogic, explains it like this:

“Home price growth is the principal driver of home equity creation. The CoreLogic Home Price Index reported home prices were up 17.7% for the past 12 months ending September, spurring the record gains in home equity wealth.”

To find out just how much rising home values have impacted equity, we turn to the latest Homeowner Equity Insights from CoreLogic. According to that report, the average homeowner’s equity has grown by $56,700 over the last 12 months.

Curious how your state stacks up? Check out the map below to find out the average equity gain for your area.The Average Homeowner Gained over $56,700 in Equity over the Past Year | Simplifying The Market

How Rising Equity Impacts You

If you’re already a homeowner, equity not only builds your wealth, it also opens doors for you to achieve your goals. It works like this: when you sell your house, the equity you built up comes back to you in the sale. You can use those proceeds to fuel your next move, especially if you’ve decided your needs have changed and you’re looking for something new.

If you’re thinking about becoming a homeowner, understanding the importance of equity can help you realize why homeownership is a worthwhile goal. It builds your wealth and gives you peace of mind that your investment is a wise one, not just from a lifestyle perspective, but from a financial one too.

Bottom Line

Whether you’re a current homeowner or you’re ready to become one, it’s important to know how equity works and why it matters. If this inspires you to make a move, let’s connect to explore your options and find out what steps you need to take next.

Homebuyers: Be Ready To Act This Winter

To succeed as a buyer in today’s market, it’s important to understand which market trends will have the greatest impact on your home search. Danielle Hale, Chief Economist at realtor.com, says there are two factors every buyer should keep their eyes on:

“Going forward, the conditions buyers face are primarily dependent on two things: mortgage rates and housing supply.”

Here’s a look at each one.

Mortgage Rates Projected To Rise in 2022

As a buyer, your interest rate directly impacts how much you’ll pay on your monthly mortgage when you purchase a home. Rates are beginning to rise, and experts forecast they’ll continue going up in 2022 (see graph below):Homebuyers: Be Ready To Act This Winter | Simplifying The MarketAs the graph shows, mortgage rates are expected to climb next year. But they’re still low when you compare to where they were just a few years ago. That presents today’s buyers with some motivation to lock in a low mortgage rate before they climb higher.

More Homes Are Expected To Be Available This Season

The other market condition buyers need to monitor is the number of homes available for sale today. The latest Existing Home Sales Report from the National Association of Realtors (NAR) shows the current supply of inventory sits at just 2.4-months. To put that into perspective, a 6-month supply is ideal for a balanced market where there are enough homes to meet buyer demand.

However, there may be good news for buyers who are waiting for more options. A recent realtor.com survey shows more sellers are planning to list their homes this winter, meaning more choices will likely be available soon.

What Does That Mean for You?

Even if your options improve some this season, it won’t significantly shift market conditions overnight. According to NAR, many more listings need to be available to move closer to a more neutral market:

“Given the average monthly demand . . . , 3.55 million homes should be on the market to meet a level of inventory equal to six months of demand, implying a shortage of homes for sale of 2.24 million.”

So remember, even with more homes expected to come to market this season, competition among buyers will remain fierce as there still won’t be enough homes for sale to meet the current demand. That means you’ll need to act quickly when you’re ready to make an offer.

Bottom Line

If you’re planning on buying a home this winter, more options are welcome news, but it doesn’t mean you should slow down. Let’s connect today so you have an expert on your side to help act as quickly as possible when the right home for you hits the market.

2022 Housing Market Forecast [INFOGRAPHIC]

2022 Housing Market Forecast [INFOGRAPHIC] | Simplifying The Market

Some Highlights

  • What does the coming year hold for the housing market? Here’s what experts project for 2022.
  • Mortgage rates are projected to rise and so are home prices. Experts are forecasting buyer demand will remain strong as people try to capitalize on rates and prices before they climb, creating another strong year for home sales.
  • Let’s connect so you can make your best move in the new year.

Stay informed