Why Waiting to Save 20% for a Down Payment May Not Be the Best Strategy
In the past, the conventional wisdom in the home-buying world was to save up a 20% down payment to avoid paying private mortgage insurance (PMI). However, in today’s market, waiting to save a large down payment may not be the best approach, especially for first-time homebuyers. Here are some reasons why:
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Rising home prices: Home prices tend to appreciate over time. While you’re diligently saving for a 20% down payment, home prices are likely increasing as well. This means that the longer you wait, the more money you’ll need to save to reach that 20% threshold.
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Building equity: When you buy a home, you start building equity with each mortgage payment. Even if you initially make a smaller down payment and pay PMI, you’re still gaining ownership in your home and benefiting from potential appreciation.
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PMI is not forever: PMI is typically temporary. Once you’ve built up enough equity in your home, you can request to have the PMI removed from your mortgage payments.
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Opportunity cost: While you’re saving for a down payment, you’re missing out on the opportunity to build equity and benefit from potential tax deductions associated with homeownership.
Conclusion
While saving for a 20% down payment is a worthwhile goal, it’s important to weigh the pros and cons in today’s market. Waiting to save a large down payment may mean missing out on opportunities to build equity and benefit from rising home prices. As a mortgage broker serving Oregon and Washington, I can help you explore your options and determine the best down payment strategy for your individual circumstances.
