Buying a Home in the Phoenix Metro with less than 20 Percent

Financial experts have long considered as the best amount to bring for a down payment as twenty percent. However as more Millennials are planing to buy a home in the Phoenix real estate market, many are burdened with student loan debt and others slowly recovering from the shutdowns to save enough funds to pay 20 percent of the agreed sales price of a home can feel as an impossible plan.

So, are first-time homebuyers in Phoenix truly coming up with that popular 20 percent? Actually, it varies on who you ask. Some agents in the Valley of the Sun say all of their first-time buyers have come in with 20 percent of the sales price.

Many mortgage experts have a bit of a different experience.  Many claim that half of their borrowers have the means to come in with a 20 percent down payment. The one's that do is usually with some help from family members as a gift.

Getting your parents and relatives to assist with the down payment is not a possible option for everyone. People planning to buy a property sooner than later many times choose an FHA loan or VA loan instead of traditional banks and lenders. The down payment for an FHA loan is just 3.5 percent with credit scores above 580 while VA loans permit the buyer to bring in zero money if they satisfy the eligibility requirements established by the Veterans Affairs.

It is worth noting that based on your financial profile, conventional lenders may approve you for a mortgage on a $2 million home with only a $200,000 down payment, which is 10 percent. 

However, home buyers  are usually required to pay mortgage insurance when they bring in less than 20 percent. premium gets added to your principal, interest, taxes and insurance monthly payment.  The additional fee typically costs from 0.5 and 1 percent of the total loan amount.  

The cost for mortgage insurance is normally offset from the home's appreciation and/or interest deduction. The lesson here is to not let small expenses get in the way of building wealth.

Although, simply because you are able to bring in below 20 percent doesn't mean that it's the best price. In the Cave Creek real estate market, many first-time buyers have a maximum price point less than $750,000 and that's among the most challenging sales price ranges. Depending on the home's features you may find yourself in a multiple offer situations.

Sellers prefer strong offers from buyers and if there's multiple offers, an FHA or VA backed mortgage may be rejected for a lot of reasons. The low down payment of 3.5 percent, below 20 percent,  looks a lot less strong than a offer with a 20-percent down payment.  To the seller and listing agent a low down payment may indicate a lack of funds or lack of commitment.

If it appears that chances with your below-20-percent down payment, make an appointment with a financial planner or mortgage expert well in advance of when you're thinking to buy. With all of your financial assets lined up, you'll have more options and a better understanding of the Phoenix-Scottsdale market. And in the interim, continue saving and skip any excesses you're buying.