If you have ever dreamed of home ownership then you must have thought about the dreaded down payment. It is recommended by most people to save between ten and twenty percent of the home’s cost for a down payment. This can be a large amount of money depending on the type of home that you buy. If you were to buy a moderately priced house of $150,000, this means that you would need to save between $15,000 and $30,000 for your home.
There are many other options available to new homebuyers these days. Many mortgage companies are willing to let you purchase a home with only 3-5% down. This seems like a reasonable option until you calculate in the cost of Private Mortgage insurance. This can be a very costly addition to your mortgage payment.
Another option that many new homebuyers are considering is to take out two loans one for the mortgage (usually about eighty-percent) and another for the difference (usually about twenty- percent). The second loan is for a higher interest rate than the mortgage. This simply makes your house payment higher, and it makes it more difficult for you to quickly build equity in your home. Many people chose this option so that they could buy a house while the interest rates were still low.
While these options are available to you, and will allow you to purchase a home more quickly, it is important to seriously evaluate your decision before you go forward. Saving up for a down payment allows you time to restructure your budget so that you can truly afford your home. It helps to bring good habits into place, so that once you have the added responsibility of home ownership, that you will be able to meet your obligations. It may seem old-fashioned to wait until you have saved the money, but it can also keep you from rushing in and purchasing something only to realize that you bought more home than you can afford.
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