What American doesn't want to own a home? The motivation to own one's own house is a strong one. Traditionally, owning a home is seen as "achieving the American Dream".
Between the challenges of low inventory and higher interest rates, potential home buyers feel stressed. They feel. both FOMO (Fear of Missing Out) ands FOMAM (Fear of Making A Mistake).
With current interest rates averaging at ~7.09%, that means the cost of borrowing money has nearly doubled since the early years of the pandemic, when rates often ranged from 2.5% to 3.5%.
"Marry the House" but "Date the Rate" is good advice. While one is committed to staying in the house for the long term, interest rates can change quickly and dramatically. When interest rates drop and change in borrowers' favor, homeowners can then refinance with a new mortgage at a lower interest rate to save money in the future.
Here is Part 2 of a 3 part series on "More Affordable Monthly Payments."
Step 2 of 3
Opt for a Higher Down Payment-Even If Part of It Is Gift Funds.
A higher down payment amount naturally translates into lower monthly payments and helps make any house more affordable right from the start. In fact, the easiest way to reduce one's monthly payment is to invest as much as possible in the initial down payment. It's just logical: the less one must borrow, the less one is required to pay back.
Did you know that currently many lenders currently allow almost unlimited gift funds from family members? Decades ago, the maximum was $10,000. Funds can come from parents, siblings, grandparents, aunts, uncles, cousins, sons, daughters, grandsons and granddaughters who are willing to help. People can even receive gift funds when they are only related by marriage, such as step-parents and step-children.
Each donor must write a letter documenting who they are giving the money to, and that it is a gift, not a loan to be repaid.
It's also possible to borrow against one's 401(k). Yes, there is a penalty for doing so before one is of the qualified age. But the borrower also pays him or herself the interest when repaying the loan.
Putting a sizable down payment amount when buying that first home means those monthly mortgage payments are going to be much more manageable. Plus borrowers pay less money in interest.
What if one can only put 3.5% down? In California, there are grant and down payment assistance programs to help with those all important first funds. They can initially seem costly, yet do allow borrowers without other options to get into a house.
For people in professions such as teaching, law enforcement and firefighting, there are often specific down payment assistance programs to help keep essential workers closer to their jobs. Be sure to ask one's loan officer about all of these options to increase one's down payment and make the home loan payment smaller and more affordable.
Thanks for reading Part 2 of a 3 part series on "More Affordable Monthly Payments." Read Part 1 here. Look for Part 3 here.
This blog post is part of the September AR Challenge.