Rebecca Richardson - Mortgage Consultant
Unpopular Real Estate Opinions
There’s a lot that goes into buying a home, and even more information available online. But like with all things on the internet, it can be difficult to find the cold hard truth. In the blog below, I’ll share some unpopular opinions about buying a home which can help you make a decision that works best for you so you don’t get burned in the long run.
A Large Down Payment Isn’t Always Best
It’s pretty common to think that a large down payment is the best way to buy a home. A down payment of 20% or higher comes with a few benefits, most notably a lower monthly payment, the potential to pay off your home sooner, and maybe a more attractive offer for sellers.
However, putting down a big down payment doesn’t work for everybody. In fact, it can come with a few glaring flaws. For example, you might end up earning more over time investing some of that extra down payment money compared to what you would save in interest over time.
Additionally, paying a large lump sum up front might make it more challenging to make improvements on a home, requiring you to dip into other savings or even require a more expensive renovation loan. And, as we all know, things happen unexpectedly, and those funds might be better set aside for an emergency fund.
As always, personal finance is just that—personal. The best strategy for you might not be the best for someone else and vice versa. It’s always best to consult your real estate or finance experts to make sure you’re making the decision that works best for your unique situation.
Committing to a 15-Year Loan Can Hurt More Than Help
You might have read that the most responsible way to buy a home is a 20% down payment with a 15-year conventional loan. As you might guess at this point in the blog, that’s not quite true.
The benefits of a 15-year loan are that the rates are typically around 0.5% less than a 30-year loan. Since your loan term is shorter, you’ll be paying at a faster rate and will simultaneously pay less interest over time.
On the flipside, the drawbacks are that you’re locked into a payment which is on average about 35% higher per month than a 30-year loan. Meaning that if your budget changes due to unforeseen circumstances, you’re stuck with that higher payment.
If you want to pay less interest without locking yourself into a higher monthly mortgage payment, most loans don’t have a pre-payment penalty. This means that you can always pay extra towards your mortgage, paying off that loan faster and with less interest while still having the financial flexibility offered by a 30-year loan.
Paying Points Rarely Pays Off
Getting a ‘good’ mortgage means having the lowest possible rate, right? Contrary to popular belief, that’s not always the case.
When shopping for your mortgage, there are a few different factors you need to be aware of before simply choosing the lowest percentage offered. Why is this the case? Well, there’s not just one mortgage rate for your loan type.
One of those factors are extra lender fees, or ‘points’ as they’re commonly referred, which essentially buys down your rate.
If you think you’ll sell your home or refinance before a certain threshold of time passes, the amount that you’re paying in points could mean that you’re not saving enough in the time that you own the home to justify the cost.
With rates likely to fall in the coming months, at the moment, paying points rarely pays off.
Of course, every situation is unique. With the right lender by your side, you’ll ensure that you’re receiving specialized advice that works best for you and you alone. If you’d like to work with a trusted and experienced lender, reach out to a member of my team and we’ll be more than happy to help make your dream of homeownership a realistic reality.