Solutions: Buying a Home with a Minimal Down Payment (Part 1)

It’s time to indulge your inner nerd and talk numbers.  Why?  Because knowing how to play the numbers can easily put a couple hundred bucks back in your pocket every month.

These days, many people are finding that their monthly payments can be several hundred dollars less per month when buying as compared to renting.  The reason- the huge drop in sale prices over the last few years, coupled with record-low interest rates.

Click on the chart below to enter your own Buying V Renting scenario.  The scenario I entered would be typical for a lot of renters in the Richmond area.  I though the results were fascinating.  On your third year of home ownership vs renting, you save over $2,000.  On the fifth year, $5,100.  On the tenth year, $9,200, and so on.

Buying V Renting graph from New York Times

Why Interest is Interesting
People who make payments on their 30 year fixed mortgage will notice something… and it might just keep you up at night with agitation and disbelief: the bulk of your monthly mortgage payment is actually just interest.  Some of your payment is going towards paying down the principal on your home and building your equity.  But most of it is interest.  Yikes.

I’ll use my own home mortgage as an example: I bought a house in 2007 when prevailing interest rates were at 6.8%.  A $200,000 mortgage at a 6.8% interest rate would give you a monthly payment of around $1,512.  Today, with interest rates around 4.5%, that same $200,000 mortgage will cost around $1,221.  Not to mention the fact that $200,000 can buy you a lot more house today than it did in ’07.

$200,000 at 6.8% = $1,512 monthly payment
$200,000 at 4.5% = $1,221 monthly payment
(all amounts are only estimates)

That means that the house you are renting for $1,300 per month, you might be able to own for lower monthly mortgage payments. Adios, landlord.  Adios, pet deposit.

So what can you do if already know that it makes more financial sense for you to buy rather than rent… but you don’t have enough savings for a down payment?

If you are a Virginia Resident, there might be a solution for you…

 

Stop by again tomorrow to learn more about the FHA Plus loan

Okay.  Tell that nerd to scram and watch some ridiculous real life Real Estate listings

 

Jay McGee used to live in Southeast Asia, doing language research and literacy development. Now he’s a Real Estate Agent with Keller Williams Realty. He gives a microloan to somebody in a developing country every time someone in Richmond buys or sells their home with him.
Contact: jaymcgee.kw@gmail.com

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