• Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar
  • Skip to footer

Sonoma County Mortgages

Contact Us About Mortgage Financing

All financing provided by New American Funding

(707) 217-4000 | Prequalify Now

Search Sonoma County Mortgages

  • Home
  • Purchase
    • How Much Down Payment To Buy A Home?
    • How Much Income You Need To Buy A Home
    • How Much Should I Save For Buying A Home?
      • How Rates Affect Payment
    • No PMI Mortgages
    • FHA Loans
    • Sonoma County Disaster Loans
    • Jumbo Loans
  • Refinance
    • Mortgage Rates
    • Does It Make Sense To Refinance?
      • Get Your Refi Paperwork In Order
    • How To Pay Off Your Loan Faster
    • How To Remove PMI
    • How Lenders Price & Quote Loans
  • Loan Programs
  • Payment Calculator
    • Mortgage Affordability Calculator
  • Blog
  • Videos
  • About SCM
  • About Scott Sheldon

Primary Sidebar

Sonoma County Mortgages is a part of New American Funding

New American Funding - NMLS #6606

Get Your Latest Rate Quote Now!

When Saving Up For A Big Down Payment Does Not Make Sense

April 16, 2015 by Scott Sheldon

Share on Facebook Share on Twitter Share on Pinterest Share on LinkedIn Share on Email

Saving up to buy a home down the road? That might make sense from a personal financial planning perspective, but from a pragmatic approach to actually getting your foot in the door you may want to reconsider your position. What to consider…

In most cases your ability to save is going to be at a much slower pace than the rate of appreciation of homes around your area. Put simply, if home prices in your area are on the rise, you need to double, maybe even triple how much you are saving on a monthly basis as the more you save goes to offset a higher housing cost when you do finally pull the trigger, rather than lowering housing costs as most might think. Think of it being at opposite ends of the spectrum to achieve the same goal. By diligently saving a portion of your income towards a higher down payment in hopes of lowering a mortgage payment, factors are working against you at the same time like it or not, choppy interest rates rising home prices. If you don’t have the down payment at all or have access to cash, all you can do is continue to save. However, if you have the cash the numbers may work in your favor. Consider the following scenario.. let’s say you purchased a home in the calendar year of 2010 in Sonoma County, California with an FHA Loan at 3.5% down. Let’s say your home value/purchase price back then was $275,000 and you put down $9,625 at closing, the minimum FHA contribution needed.

Fast forward to July 2013, assuming you took out a 30 year fixed rate mortgage diligently paying down your principal and interest each month (since 2010) while the economy gained momentum, at this point you would have accumulated it least 20% equity just by getting your foot in the door. Your mortgage would have been paid down to approximately $255,000 and your home equity would’ve accumulated just by virtue of the of amortization balance pay down, providing refinance opportunity anyway.

Fast-forward to 2015 housing prices have continued to rise based on real demand vs supply (not an inflated market created by credit products pre-2007) and now you probably have 40% equity in your home if not more giving you a bigger chance to refinance your house anyway if you didn’t back in 2013 for example.

Can Buying A Home In 2015 Pencil?

As the economy continues to post positive economic stats, driving housing demand, the answer is yes. As prices continue to rise, homeowners benefit by the consistent monthly increase in lendable home equity. This equity is used to reduce your mortgage payment or switch to a shorter fixed rate term in an effort to pay off the mortgage faster when refinancing.

If you have it least three and half percent of the purchase price to buy a house or more conservative approach 5% of the purchase price to buy a house, there can probably be a good case to be made to be buying a home knowing that the probability of you continuing to accumulate equity is probable. Remember housing prices from 2004-2006 were brought on by a market rampant with abusive and predatory lending practices, virtually giving loans to anyone who applied. Getting a mortgage today and well into the future no doubt requires your ability to prove you can actually afford the mortgage payment. This leaves the direction of home prices to economic trends not, aggressive credit products. In other words, the rate of appreciation in homes is healthy in relationship to the broader economy with jobs being created and the unemployment rate remaining low. The Federal Reserve recognizes this which is why there’s a probability tightening (raising) interest rates for a growing economy- to slow down the rate of inflation later part of this perhaps in Q3.

If you were to buy house with today’s interest rate and housing environment what the numbers would look like with 5% down assuming house price for 425,000 Or 10% down by savings for more skin in the game later. If you decide to wait until you’re more comfortable with a 10% down payment, assuming housing prices continue their upward momentum and interest rates follow suit by trickling up, housing will cost more. A $425,000 house today could cost you $50,000 in purchase price for that exact same house and $426 per month more and mortgage payment even by forking over more cash by the time you save the extra cash!

Other Lending Risk Factors At Play

  • PMI is a lower factor on loans 417k or lower
  • If the loan amount exceeds 417k, 10% down is needed (for conventional still 3.5% for FHA)

Notice the change in private mortgage insurance (PMI) and the property taxes are also higher, again pointing to a higher future cost of housing, even with more skin in the game.

What we are advocating is this, if you can afford a mortgage payment with today’s home prices and interest rates and you have at least a 5% down payment (or 3.5% FHA), as well as monies for closing costs, it might better serve you to purchase a house while you can before the same priced house in the future costs you more because you’re simply electing to put more money in when it might not be necessary. Moreover, should that scenario play out you could always refinance your house in the future anyway to take advantage of the additional equity accumulation on a conservative fixed rate principal and interest mortgage.

Need a mortgage? Get a free mortgage quote to buy or refinance a home today!

 

 

Related Mortgage Advice from Scott Sheldon

  • saving to buy a home
    How saving plays a role in your home buying plan

    Saving up to buy a home is no easy feat. Here's what you should take…

  • Should you go Fha or Conventional?
    Should you go FHA or Conventional?

    FHA loans and conventional loans remain the most popular financing type for today's mortgage borrowers.…

  • Sonoma County Home Loans: Mortgage Insurance 101

    Mortgage Insurance is the dreaded monthly cost mortgage lenders put on borrowers looking to purchase…

  • How Loan To Value Affects Interest Rate

    Many of the mortgages being made today contain higher loan to values. These loans contain…

Filed Under: First Time Home Buyers, Loan Qualifying, Mortgage Tips & Advice, Pre-Approval Tagged With: buying a house, how much should I plan for down payment, how to buy sonoma county real estate, sonoma county home buying

Get Sonoma County Mortgages News and Updates in Your Inbox

Footer

SCM on Facebook

SonomaCountyMortgages.com

Connect on Facebook

SCM On Instagram

Follow Sonoma County Mortgages on Instagram

Follow on Instagram

SCM on Zillow

Zillow Reviews for Scott Sheldon, New American Funding

See Reviews on Zillow

Location & Contact

Sonoma County Mortgages and New American Funding are an Equal Opportunity Housing Lender

Scott Sheldon, Senior Loan Officer
NMLS ID# 287389
2455 Bennett Valley Road C107
Santa Rosa, CA 95405
1-707-217-4000
View SCM Map | Email Us!

Map of Sonoma County Mortgages New American Financing Office

View Map on Google

Copyright 2010–2023 SonomaCountyMortgages.com · About Us · Sonoma County Loans · Privacy Policy · Terms Of Use · Legal · Site Map

NMLS Consumer Access © New American Funding. All rights Reserved. NMLS ID#6606.
Corporate Office 14511 Myford Road, Suite 100, Tustin, CA 92780. We at New American Funding take great pride in our customer service and make it our number one priority. We encourage you to contact us for complaint resolution or any post-closing questions you may have regarding the servicing of your loan. We strive to have your experience with New American Funding a stellar one. In the rare case that our service did not meet your expectations, please call our customer care hotline at 1-800- 450-2010, ext. 7100 or you may contact us by email customerservice@nafinc.com. Please leave a detailed message and we will follow up with you no later than the end of the next business day. If you are using a screen reader or other auxiliary aid and are having problems using this website, please call 800-450-2010 Ext. 7100 for assistance.

State Licensing (Opens in New Window) | Privacy (Opens in New Window)
Terms of Use (Opens in New Window) | Electronic Consent Agreement (Opens in New Window)
Opens in new window Opens an external site Opens an external site in a new window