8 Kasım 2007 Perşembe

Why you need a home down payment

My wife and I just got married and we'd like to buy a house soon. We've been setting aside money for the down payment but we have quite a way to go -- we'd need about $70,000 to make a 20% down payment in our area. We're wondering whether we should just go ahead and buy a house now with no money down, or wait until we've saved the 20%?
Lenders are making it a lot easier to buy a house without the traditional 20% down payment, but you're going to pay a lot for that option. If you borrow more than 80% of the home's value, you'll usually have to pay private mortgage insurance, which protects the lender if you default on your loan. That tends to cost 0.5% to 1% of the loan value, up to $3,500 per year on a $350,000 home, or $5,000 on a $500,000 home. It's money that doesn't go toward your principal or interest.
Another option is to piggyback two loans. If you take out one loan for 80% of the cost and another for 20% (or for 15% and pay 5% in a down payment), you can avoid private mortgage insurance. The interest on both loans is generally tax deductible, but the rates on that second loan are quite high -- now running in the low- to mid-9% range.
If you wait to amass the 20% down payment, you can avoid these extra costs, qualify for a lower-rate loan and keep your mortgage payments much lower, which gives you a lot more flexibility in the future.

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