As a future home buyer you may be entertaining various loan options available that would yield you with the lowest out of pock down payment. While this may seem attractive to you in the beginning, this could become your worst nightmare. Sure, there are loan programs available that could allow you to finance almost if not all of the purchase price of that home you have been eyeballing. Our goal is for you to truly understand the time and value of money. Rather, should I ask you another way! Would you take a dollar this month if next month you had to return the same dollar?
Of course not, you may ask what would be the point in that. However, when it comes time for you to purchase your first home or even your next home remember this scenario. Many home buyers are willing to jump the gun and force themselves into a future of drudgery. Home affordability is intended for home buyers to uncover and expose all of your personal finances. Until you uncover and expose one will not be able to see the future picture of your finances.
Let’s take a look at those attractive low option down payment scenarios again with an example. Let’s say you take a loan for $120,000 at 3% interest for 30 years! A dollar may not sound like much on the surface but let’s see how just $1.00 can create a snowball. The interest for financing $120,000 at the end of year would will cost $3,565.74 in interest. Fast forward for 30 years and the total interest you would have paid is $62,132.94.
On the other hand, let’s say you decided to wait even though it wasn’t your first choice of options. For the same loan of $120,000 at 3% interest and you waited to save a 5% down payment for a 30-year loan; which 5% equals $6,000. At the end of 30 years the total interest is $59,026.30. Now take a look back at the attractive loan option where you paid $62,132.94 in interest, subtract your loan option where you came to your senses $59,026.30; and the difference is $3,106.64. Your down payment of $6,000 saved you a total of $3,106.64! The time and value of money is not replaceable. Home buyers should position themselves, and wait to save money for a sizeable down payment.
No Down Payment
5% Down Payment
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